Some retail investors monitor insider trading behavior as part of their stock selection and analysis process, and rightly so. After all, past research concludes that insider purchases tend to beat the broader market on aggregate. Nonetheless, the key word in the previous sentence is “aggregate”, meaning that most purchases likely predict future share price appreciation, but not all of them.
Luckily, there are several approaches to filter out the most informative and predictive insider buying activity. First and foremost, retail investors should look for clusters of buying, which usually serve as more reliable bullish indicators than small, individual purchases. Second, investors should try to avoid the insider buying activity conducted by freshly-appointed Board members or executives to fulfill the stock ownership guidelines imposed by their companies. What’s more, investors should not blindly mimic insiders’ behavior (though this practice has been proven to yield impressive results over the years), but rather, should focus on pairing insider buying with a sound investment thesis. Insider Monkey processed dozens of Form 4 filings submitted with the SEC on Friday and picked five companies with noteworthy insider trading.
At Insider Monkey, we track around 750 hedge funds and institutional investors. Through extensive backtests, we have determined that imitating some of the stocks that these investors are collectively bullish on can help retail investors generate double digits of alpha per year. The key is to focus on the small-cap picks of these funds, which are usually less followed by the broader market and allow for larger price inefficiencies (see more details).
Board Member at Shopping Mall Owner and Operator Boosts Share Ownership
Let’s kick off our discussion with the insider buying activity observed at DDR Corp (NYSE:DDR). Board member Alexander Otto, the company’s biggest single shareholder, bought 218,699 shares on Thursday and 62,951 shares last Monday at prices varying from $14.86 to $15.03 per share. After last week’s purchases, Mr. Otto currently owns an aggregate of 42.52 million shares.
The aforementioned insider buying comes a little more than three weeks after the CEO and President of the shopping mall owner and operator, Thomas F. August, and another Board member boosted their holdings. The Beachwood-based real estate investment trust that specializes in shopping centers has seen the value of its shares drop by 10% since the beginning of the year. Earlier this month, DDR Corp (NYSE:DDR)’s Board of Directors approved a dividend of $0.19 per share for the fourth quarter, a dividend that yields 5.05% annually. AEW Capital Management, run by Jeffrey Furber, reported owning 3.23 million shares of DDR Corp (NYSE:DDR) in its 13F filing for the third quarter.
The next two pages of this insider trading article will discuss noteworthy insider purchases and sales reported with the SEC on Friday.