Insider Buying Metrics Pointing to Three Battered Companies Poised to Rebound

As usual, the second-quarter earnings season unofficially starts with the release of Alcoa Inc. (NYSE:AA)’s financial results on July 11, which makes us believe insider trading activity, particularly insider buying, is likely to slow down in the upcoming weeks. According to FactSet, U.S. companies will experience yet another bleak earnings season, as companies included in the S&P 500 Index are anticipated to see their earnings fall 5.3% on aggregate for the second quarter.

This is the longest profit recession since the financial crisis, with the benchmark being on track to experience five straight quarters of year-over-year declines in earnings. Some analysts argue that U.S. equities may not reach higher levels while corporate earnings continue collapsing for more than four consecutive quarters. Nonetheless, insider buying activity does not lose its usefulness even amid turmoil and high uncertainty, as corporate insiders usually buy battered stocks poised to go higher in the subsequent months. Executives and Board members tend to follow the pattern of “buying low and selling high”, so investors should keep track of both insider buying and selling. That said, the following article will discuss fresh insider buying reported earlier this week with the SEC.

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).

Operator of Motorsports Properties Registers Insider Buying After Releasing Earnings Report

International Speedway Corp (NASDAQ:ISCA) saw a member of its boardroom engage in some insider transactions earlier this week. Board member J. Hyatt Brown reported purchasing 10,000 Class A shares for $33.71 each on Wednesday, all of which are held jointly with his spouse. Mr. Brown also transferred 819 Class A shares from his direct-ownership account to the account held jointly with his spouse, which currently holds 42,402 Class A shares. The Board member has a direct ownership stake of 897 Class A shares, as well as an additional indirect ownership stake of 9,000 Class B shares.

The recent insider buying comes briefly after the leading promoter of motorsport-themed entertainment activities in the United States released rather disappointing second-quarter financial results. International Speedway Corp (NASDAQ:ISCA) recorded total revenues of $167.6 million for the second quarter, up from $164.0 million reported a year ago. The increase in the company’s top line was mainly driven by contracted broadcast rights increases and strong corporate partnerships, partially offset by attendance-related revenue challenges at some events. The company, which owns and operates 13 of the nation’s premier motorsport entertainment facilities, reported net income of $21.9 million or $0.47 per diluted share, up from $13.4 million or $0.29 per diluted share recorded a year ago.

International Speedway’s shares are down a little less than 1% since the beginning of 2016. The number of asset managers followed by Insider Monkey with stakes in the operator of motorsports properties in the U.S. climbed to 20 from 14 during the first quarter of 2016, with those 20 managers amassing 12% of the company’s outstanding common stock. John W. Rogers’ Ariel Investments cut its stake in International Speedway Corp (NASDAQ:ISCA) by 21% during the March quarter to 4.22 million shares.

Let’s head to the second page of this article, where we will discuss the insider buying at two low-priced companies.

Provider of Rugged Mobile PCs Has CFO Buy Some Shares

Xplore Technologies Corp. (NASDAQ:XPLR) had one member of its executive team pile up some shares earlier this week. Chief Financial Officer Thomas Wiley Wilkinson snatched up two blocks of 5,000 shares each on Tuesday, which are held indirectly by SEP FBO Thomas Wilkinson. These 10,000 shares were purchased at a weighted average cost of $2.44 per share. After the recent purchase, Mr. Wilkinson holds an indirect ownership stake of 20,000 shares.

The Austin-based maker of impact-resistant tablet computers has lost 52% of its market value since the beginning of 2016. Xplore Technologies Corp. (NASDAQ:XPLR)’s stock performance was recently weighted by its lower-than-anticipated fiscal 2016 financial results. The company, currently the Nr.2 provider of rugged tablets worldwide, reported record revenue of $100.5 million for fiscal 2016 that ended March 31, up from a mere $42.6 million reported for fiscal 2015. Xplore recorded a net loss of $362,000 on operating income of $1.05 million, compared to net income of $249,000 on operating income of $327,000 posted a year ago. The massive drop in the company’s bottom line reflects integration and acquisitions costs associated with the acquisition of certain assets of Motion Computing Inc. in April 2015.

It remains to see whether Xplore Technologies will succeed in defending its market share by building marketplace awareness of its products in the face of strong competition from Panasonic, the largest provider of mobile rugged computers, and other players in the industry. There were a mere four hedge fund vehicles from our system invested in the company at the end of March, which accumulated 5% of its total number of shares. Jim Simons’ Renaissance Technologies LLC owns 33,500 shares of Xplore Technologies Corp. (NASDAQ:XPLR) as of March 31.

Struggling Provider of Cloud-Related Solutions Registers Notable Insider Buying

InterCloud Systems Inc. (NASDAQ:ICLD) has seen two insiders purchase sizable blocks of shares in the past several trading sessions. To start with, Chairman and CEO Mark E. Munro snapped up 62,500 shares last Thursday for $0.80 each and 72,463 shares on Friday at $0.69 apiece. After the recent purchases, Mr. Munro currently owns 1.62 million shares. Board member Mark F. Durfee also purchased 62,500 shares on Thursday and 72,463 shares on Friday, lifting his ownership to 632,428 shares.

The provider of cloud networking orchestration and automation solutions and services has seen the value of its shares plunge by 35% since the start of 2016. As stated in the company’s latest SEC filings, InterCloud Systems Inc. (NASDAQ:ICLD)’s management has doubts about the company’s ability to continue operating given that its available cash balance will not be enough to fund the anticipated level of operations for the next year. At the end of June, InterCloud Systems announced it had received more than $4.0 million in purchase orders since the start of 2016 for software defined networking and virtual network function validation services for a global networking company, which Mr. Munro called “one of the most significant announcements InterCloud has ever released”. Hence, the recent insider buying appears to suggest that InterCloud may perform better in the upcoming months. There were no hedge funds tracked by our team with equity investments in InterCloud Systems Inc. (NASDAQ:ICLD) at the end of March.

Disclosure: None