The Valspar Coporation (NYSE:VAL) was up about 13% for the year in late May, but over the last month the $5.5 billion market cap coatings and paints company has given up all of those gains. The primary culprit for the decline would appear to be the decision to acquire European coatings manufacturer Inver Group. The business is fairly small relative to The Valspar Coporation (NYSE:VAL), but investors may still be concerned about integration risks. In addition, the company’s financials for the second quarter of its fiscal year (the quarter ending in April) showed flat performance versus a year earlier.
A member of The Valspar Coporation (NYSE:VAL)’s Board of Directors, John Ballbach, seems to be more confident in management’s decisions. He directly acquired nearly 2,100 shares of stock on June 21st, nearly doubling his holdings to a total of about 4,800 shares. The purchases took place at an average price of $65 per share, above where The Valspar Coporation (NYSE:VAL) currently trades. We track insider purchases because our analysis of insider activity shows that there is a small outperformance effect for stocks bought by insiders (read our analysis of studies on insider trading); our theoretical explanation for this is that insiders should prefer to diversify their wealth unless they are confident that the company’s stock is undervalued.
As we’ve mentioned, there was little change in The Valspar Coporation (NYSE:VAL)’s revenue or earnings in its most recent quarter compared to the same period in the previous year, and the same had been the case for fiscal Q1. Over this time a decline in the coatings business has been offset by growth in paints, which might be attributed to a rise in the U.S. housing market- a majority of the company’s total revenue is domestic. Wall Street analysts expect EPS to improve considerably this year and next year, and the stock trades at 14 times forward earnings estimates.
In addition to insider activity, we also monitor quarterly 13F filings from hundreds of hedge funds and other notable investors. We’ve found that 13Fs can be useful sources of information for developing investment strategies; we have found, for example, that the most popular small cap stocks among hedge funds generate an average excess return of 18 percentage points per year. We can also use this database to track interest in individual stocks, and can see that billionaire Ken Griffin’s Citadel Investment Group owned a little over 1 million shares of The Valspar Coporation (NYSE:VAL) as of the end of March (see Griffin's stock picks).