U.S equities closed sharply in the green on Friday, putting an emphatic end to a five-day losing streak. Nonetheless, the major U.S stock benchmarks were down by approximately 1% for the week, extending their year-to-date decline to about 8%. Expectedly, there was a surge in insider buying activity last week, as corporate insiders were seeking to profit from battered valuations and the high uncertainty in the market. In fact, last week’s volume of insider buying more than doubled relative to the previous week, whereas the volume of insider selling slightly decreased week-over-week. As a result, the ratio of insider selling to insider buying decreased quite significantly week-over-week, which definitely serves as an optimistic indicator about the future course of U.S equities. To be more detailed, the surging insider buying clearly indicates that business conditions are not deteriorating to the degree that the stock market’s performance would indicate. The Insider Monkey team identified three companies with noteworthy insider purchases last week, so let’s take a look at the recent performance of the companies in question.
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).
Twenty-First Century Fox Inc. (NASDAQ:FOX) is one of the many companies that witnessed noteworthy insider buying last week. James W. Breyer, a member of the company’s Board of Directors since 2011, purchased a new stake of 43,000 class A shares on Thursday at a price of $24.50 per share. The shares of the diversified media and entertainment company are down by 27% over the past 12 months, which partly explains the Director’s sizable purchase. The company generated revenue of $13.45 billion during the six months that ended December 31, down from the $15.94 billion that it reported for the same period of the prior year. The decrease was mainly attributable to the sale of its direct broadcast satellite (DBS) businesses in November 2014, but revenue decreased by 3% year-over-year even when excluding the activity of the DBS businesses. The decrease in content revenue, which severely impacted the company’s top-line result, was somewhat offset by higher affiliate fee revenue due to higher average rates per subscriber and higher advertising revenue. Twenty-First Century Fox Inc. (NASDAQ:FOX)’s Cable Network Programming segment, which accounted for 41% of total revenue for the six-month period, saw revenue increase by 8% year-over-year. The stock currently trades at a forward P/E multiple of 11.26, which is somewhat below the 13.90 average for the Movies & Entertainment industry. Individual investors considering following insiders’ footsteps should also bear in mind that the company pays out an annualized dividend of $0.30 per share, which offers a current dividend yield of 1.21%. Donald Yacktman’s Yacktman Asset Management owns 38.67 million class A shares of Twenty-First Century Fox Inc. (NASDAQ:FOX) as of December 31, down by 1.94 million shares quarter-over-quarter.