Although it’s impossible to estimate how many retail investors examine insider trading activity as part of their stock analysis process, there is good reason to believe numerous long-term-oriented investors do take notice of insider buying metrics. There are three primary reasons researchers study reported insider trading, which include science, profit, and policy. Without lying to ourselves, most of us mostly think about developing profitable trading strategies based on insiders’ actions, so let’s see what academics say about the profitability of insider trading. Past research concludes that corporate insiders buying shares on the open market have a good feel for short-term developments within their firms, so they do earn abnormal returns on aggregate. While most studies have not found abnormal returns when insiders sell shares, one should still have a look at spur-of-the-moment insider selling (insider selling conducted under pre-arranged trading plans or related to freshly-exercised stock options does not seem to be very informative). That said, let’s take a glimpse at several noteworthy insider purchases and sales reported with the SEC on Thursday.
Academic research has shown that certain insider purchases historically outperformed the market by an average of seven percentage points per year. This effect is more pronounced in small-cap stocks. Another exception is the small-cap stock picks of hedge funds. Our research has shown that imitating the 15 most popular small-cap stocks among hedge funds outperformed the market by nearly a percentage point per month between 1999 and 2012 (read more details here).
This Refiner Saw Two Top-Tier Executives Purchase Shares This Week
PBF Energy Inc. (NYSE:PBF) had two of its most influential and informed executives buy shares earlier this week. To begin with, President Matthew C. Lucey purchased 10,000 Class A shares on Wednesday at a price tag of $27.50 per share, increasing his overall holding to 50,000 shares. More importantly, Chief Executive Officer Thomas J. Nimbley snapped up 50,000 shares on the same day at prices varying from $27.34 to $27.52 per share, which lifted his ownership to 110,000 shares.
The market value of the independent petroleum refiner has fallen by 25% since the beginning of 2016. PBF Energy Inc. (NYSE:PBF), which has four refineries across the United States, reported revenues of $2.80 billion for the first quarter of 2016, which were down from nearly $3.00 billion posted a year ago. Industry refining margins in the Mid-Continent were lower during the first three months of 2016 as compared to the same period of 2015, which put some pressure on the refiner’s performance. Seth Klarman’s Baupost Group LLC reported owning 10.64 million shares of PBF Energy Inc. (NYSE:PBF) in its latest 13F.
The next two pages of this insider trading article will examine several insider transactions registered at four other companies.