Is insider trading behavior a good barometer for future stock performance? Yes and no! And let me explain why. Past research concludes that insider purchases indeed tend to outperform broader market benchmarks by a wider margin in the long-term, which makes us confident that insider buying activity does serve as a good barometer for future stock performance. But what about insider selling? Much research could not find strong evidence that insider selling is indicative of future underperformance, which could be explained by the proliferation of equity-based compensation packages. Corporate insiders are not only selling shares in their own companies because they believe their companies will underperform; most of the times directors and executives are selling shares simply because they need the cash for personal reasons that have nothing to do with the future prospects of their companies. Leaving this discussion aside, let’s have a look at a series of noteworthy insider transactions reported with the SEC on Tuesday.
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).
Real Estate Investment Company With Two Insiders Purchasing Shares
Kennedy-Wilson Holdings Inc. (NYSE:KW) had two corporate insiders, namely one director and one executive, buy shares earlier this week. Board member Stanley R. Zax purchased 50,000 shares on Tuesday at prices that ranged from $18.62 to $18.85 per share, lifted his overall holding to 234,800 shares. More importantly, Chairman and Chief Executive Officer William J. McMorrow snapped up two blocks of 10,000 shares each on the same day, one of which is held through the William J. McMorrow Revocable Trust that currently owns 11.82 million shares. The two blocks were purchased at prices that ranged from $18.78 to $18.87 per share. Mr. McMorrow also holds a direct ownership stake of 1.99 million shares.
The market value of the global real estate investment company is down 21% since the beginning of the year. Kennedy-Wilson Holdings Inc. (NYSE:KW), which focuses on multifamily and commercial properties in the U.S., United Kingdom, Ireland, Spain, Italy and Japan, recently announced a quarterly dividend of $0.14 per share. The dividend payment equates to an annual dividend of $0.56 per share and an annual yield of 2.96%. Alan S. Parsow’s Elkhorn Partners reported ownership of 4.03 million shares of Kennedy-Wilson Holdings Inc. (NYSE:KW) in its latest 13F.
Community Bank’s President Acquires Massive Block of Shares
Green Bancorp Inc. (NASDAQ:GNBC) saw one of its most informed executives buy shares several trading sessions ago. President Geoffrey D. Greenwade bought 38,000 shares on Monday at prices varying from $8.79 to $8.91 per share. After the recent purchase, Mr. Greenwade currently owns a stake of 87,606 shares. The bank holding company for Green Bank N.A. recorded a cluster of insiders buying in early February (read more details), so I added the stock to my watchlist. The stock returned nearly 31% since then, but insiders keep buying shares.
Green Bancorp Inc. (NASDAQ:GNBC)’s net interest income before the provision for loan losses was $34.2 million for the first quarter of 2016, up from $20.5 million recorded a year ago. The increase was mainly driven by a massive increase in average loan volume mainly due to the acquisition of Patriot Bancshares Inc. in October 2015, as well as successful marketing activity of the bank’s portfolio bankers. Jim Simons’ Renaissance Technologies LLC held 207,800 shares of Green Bancorp Inc. (NASDAQ:GNBC) at the end of March.
The next page of this insider trading article will reveal notable insider activity registered at three other companies.