Last week’s insider buying activity increased significantly relative to the previous week, mainly as a result of Carl Icahn’s bullish moves on Hertz Global Holdings Inc. (NYSE:HTZ) and Cheniere Energy Inc. (NYSEMKT:LNG). At the same time, the volume of insider selling registered last week dropped significantly relative to prior one. Therefore, the ratio of insider selling over insider buying reached a level not seen for a long time, with insiders selling roughly 1.29-times more shares in terms of value than they bought. This ratio should not surprise anyone considering that the S&P 500 Index registered its largest weekly loss since August. But why would anyone bother to monitor the insider trading behavior? As a general rule, insider buying is considered a bullish sign, as it is hard to believe that an insider would invest his or her hard-earned money in a company’s stock without expecting a return. Corporate insiders appear to have a better understanding of their companies’ businesses and future potential, but that does not necessarily mean that insiders’ moves are profitable on all occasions. With that in mind, this article will uncover the insider buying activity registered at three companies and discuss 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. We have been forward testing the performance of these stock picks since the end of August 2012 and they have returned 102% over the ensuing 38 months, outperforming the S&P 500 Index by more than 53 percentage points (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.
To start with, Ferrellgas Partners L.P. (NYSE:FGP) saw three different insiders buy stock last week. Chief Financial Officer Alan C. Heitmann reported purchasing 5,960 shares on Friday at $15.80 apiece, lifting his overall stake to 15,960 shares. Moreover, President and Chief Executive Officer Stephen L. Wambold added 20,000 shares to his holding on the same day, which is currently comprised of 150,000 shares. The 20,000-share block was purchased for $15.78 each. Last but not least, Director Michael F. Morrissey bought 2,000 shares last week at a cost of $15.29 per share and holds 6,000 shares.
The distributor of propane and related equipment has seen its shares decline by 32% this year, including 28% so far in December. The demand for propane is highly dependent on weather conditions, so the warmer-than-expected weather during the three-month period that ended October 31 significantly impacted Ferrellgas Partners L.P. (NYSE:FGP)’s financial results for the first quarter of fiscal year 2016. Nevertheless, the company’s total revenue for the most recent fiscal quarter increased by 6% year-over-year to $471.15 million, thanks to the additional revenue from the midstream operations in the crude oil logistics segment, as a result of the acquisition of Bridger Logistics in June. It is also worth pointing out that the substantial decrease in the wholesale market price of propane led to a stronger gross margin per gallon for the company. A mere four hedge funds tracked by Insider Monkey were invested in the company at the end of the third quarter. Jim Simons’ Renaissance Technologies is one of them, holding 294,600 Ferrellgas Partners L.P. (NYSE:FGP) shares as of September 30.