Rightfully assuming corporate insiders know a lot more about their company’s prospects and recent developments than any of us, investors would be wise to keep a close eye on how insiders are trading their company’s shares. These highly-informed individuals are way ahead of analysts and portfolio managers, which is why their purchases have been shown to have outperformed broader market benchmarks on aggregate. However, retail investors should not attempt to blindly mimic each insider move, as outsiders need to consider the underlying factors that dictate the timing of insiders’ transactions.
Most insiders sell shares for diversification or liquidity needs, the kind of insider selling that should not worry investors. Nevertheless, by watching the trading activity of corporate insiders, investors can get a better sense of a stock’s prospects. Insider Monkey processed the majority of Form 4 filings submitted with the SEC on Tuesday and identified five companies that registered noteworthy insider trading activity.
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).
Online Retailer’s Freshly-Resigned President Buys Shares
Overstock.com Inc. (NASDAQ:OSTK) had one of its most influential executives purchase a sizable block of shares last week. Stormy D. Simon, who recently announced that she would resign from her position as the President of the online retailer by July 25, snapped up 70,000 shares on Friday at a price tag of $16.96 each. Ms. Simon, who will remain a member of the company’s Board until no later than September 30, currently holds an ownership stake of 147,417 shares.
The online retailer offers a broad portfolio of price-competitive brand name, non-brand name and closeout products, and has seen its market value jump by 34% since the start of 2016. Overstock.com Inc. (NASDAQ:OSTK)’s overall revenue growth has been slowing since mid-2015, partially due to changes Google has made to its natural search engine algorithms. As a result, the online retailer has increased its focus on other marketing channels such as sponsored search, which has led to higher revenue growth, as well as higher marketing expenses than through natural search. Prem Watsa’s Fairfax Financial Holdings owned 3.18 million shares of Overstock.com Inc. (NASDAQ:OSTK) at the end of March.
Insider Buying at Operator of Private Golf and Country Clubs
ClubCorp Holdings Inc. (NYSE:MYCC) saw a member of its Board of Directors buy some shares earlier this week. Board member Margaret M. Spellings acquired 1,000 shares on Tuesday at $14.76 apiece, lifting her ownership stake to 10,719 shares.
The insider buying comes shortly after the leading owner-operator of private golf and country clubs released its financial results for its second quarter of fiscal year 2016 ended June 14. ClubCorp Holdings Inc. (NYSE:MYCC) has lost 21% of its market value in 2016, partially owing to a “short” investment thesis outlined by Kerrisdale Capital Management in April. The private investment firm said “golf participation, golf rounds played, and sales of golf equipment have all trended down over the past decade, while the age of the average golfer has trended up”; demographic pressures that strain the entire industry and ClubCorp in particular. Kerrisdale Capital’s discounted cash flow model values ClubCorp’s stock at just $2.75 per share, which implies 81% downside. Ken Griffin’s Citadel Advisors LLC had 1.13 million shares of ClubCorp Holdings Inc. (NYSE:MYCC) among its holdings on March 31.
The next page of this article will reveal several noteworthy insider transactions registered at three other companies.