Rising interest rates, a struggling Chinese economy, declining crude oil prices and a strong U.S dollar are key factors that explain the increased volatility and wild swings in the U.S equity market this year. Of course, individual investors should not overlook these factors when making investment decisions, but the truth is that the U.S economy continues to be pretty solid despite facing numerous headwinds. The nation’s economy has been mainly supported by the depressed gas prices and tightening labor market, which have led to stronger consumer confidence. The high degree of uncertainty in the stock market makes it really hard for individual investors to pinpoint great buying opportunities at the moment, so they should consider turning their attention to the camp of stocks favored by corporate insiders. Extensive research has shown that insider purchases tend to outperform broader market benchmarks on aggregate; hence, mimicking insiders’ moves seems to be a winning investment strategy, regardless of market conditions. The Insider Monkey team stumbled upon three companies with noteworthy insider buying, which we’ll analyze in this article.
Most investors can’t outperform the stock market by individually picking stocks because stock returns aren’t evenly distributed. A randomly picked stock has only a 35%-to-45% chance (depending on the investment horizon) to outperform the market. There are a few exceptions, one of which is when it comes to purchases made by corporate insiders. 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 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). The trick is focusing only on the best small-cap stock picks of funds, not their large-cap stock picks which are extensively covered by analysts and followed by almost everybody.
Let’s begin the discussion with ExOne Co (NASDAQ:XONE), which had an influential insider purchase a massive block of shares recently. S. Kent Rockwell, Chairman and Chief Executive Officer since January 2013, recently purchased 1.42 million shares at a price of $9.13 each, boosting his overall holding to 4.21 million shares. The freshly-upped stake is held through the S. Kent Rockwell Trust and represents 28.8% of the company’s outstanding shares. It should also be mentioned that the purchase was made via a registered direct offering of common shares, intended to enhance ExOne Co (NASDAQ:XONE)’s liquidity position so as to meet its 2016 growth objectives.
The global provider of 3D printing machines has seen its shares decline by 45% since the middle of January 2015, mainly owing to the lower-than-anticipated demand for 3D printing machines. The company shipped 11 3D printing machines in the fourth-quarter of fiscal year 2015, extending the number of 2015 shipments to 38. The company also incurred higher production and selling costs during the year, as well as enhanced costs from general and administrative activities, so ExOne’s management might have to seek new ways to reduce costs and drive customer demand. The company introduced six new printable materials for use in its 3D printing systems last year, which could attract new customers this year. A mere three hedge funds tracked by Insider Monkey were invested in the struggling company at the end of the third quarter. Daniel S. Och’s OZ Management held 99,900 shares of ExOne Co (NASDAQ:XONE) on September 30.