In a recent study on insider trading, a group of researchers from several top-tier U.S. universities split insider trading into two camps: predictable or routine insider trading activity, and information-rich or opportunistic insider trading activity. The so-called routine insider trading is usually driven by diversification or liquidity reasons. For instance, insider trading watchers may have noticed that Bill Gates trades in a pre-announced, routine fashion. And Mr. Gates’ sales surely do not suggest that Microsoft Corporation (NASDAQ:MSFT) is about to face serious troubles going forward.
Meanwhile, only a small portion of the overall insider buying activity appears to be routine. For example, purchases conducted by newly-appointed Board members or executives to meet stock ownership guidelines could be considered routine. While I consider the purchases completed by newly-appointed insiders as routine, I still discuss some of these purchases in our daily insider trading articles. Although these purchases do not necessarily signal that a company’s stock is undervalued, they can be viewed as a positive sign on most occasions given that the interests of the newly-appointed better align with shareholders’ interests. That being said, the following article will discuss a set of insider transactions reported with the SEC on Monday.
At Insider Monkey, we track around 750 hedge funds and institutional investors. Through extensive backtests, we have determined that imitating some of the stocks that these investors are collectively bullish on can help retail investors generate double digits of alpha per year. The key is to focus on the small-cap picks of these funds, which are usually less followed by the broader market and allow for larger price inefficiencies (see more details).
Board Member of Asset-Management Giant Initiates New Stake
According to our insider trading database, no insiders at BlackRock Inc. (NYSE:BLK) had purchased any shares since early 2013 until last week. Board member William S. Demchak initiated a new stake of 1,200 shares on Thursday at a price of $341.11 each.
As exchange-traded funds and other low-fee investment products have been reshaping the financial industry for quite a while, some argue that BlackRock Inc. (NYSE:BLK) represents a must-own stock. The bullish camp of investors and analysts claim that the well-known asset-management giant is well positioned to benefit from the fact that investors are becoming tired of paying hefty fees to asset managers who rarely beat benchmarks. While exchange-traded funds and other low-fee investment products have been performing quite well over the past several years, thanks to the long bull run enjoyed by investors, these financial instruments will not deliver strong performance on a consistent basis. Nonetheless, Argus analysts argue that BlackRock should trade at a premium to other large-cap financial stocks, mainly because of the company’s “above-average operating margins, stable long-term asset inflows, and history of product innovation.” Argus analysts have a price target of $400 on BlackRock shares. The company’s shares are up a little less than 1% year-to-date. Ken Fisher’s Fisher Asset Management reported ownership of 72,061 shares of BlackRock Inc. (NYSE:BLK) as of the end of September.
On the next two pages of this article, I will discuss fresh insider trading activity observed at four other companies.