A longstanding rule of thumb says that corporate insiders buy shares of their own companies on the open market for one simple reason – they believe Mr. Market severely undervalues their companies’ stock. Although it is true that insider purchases tend to beat broader market benchmarks on aggregate, Insider Monkey does not recommend investors to blindly mimic each insider purchase. However, I would like to point out three simple tips that will likely allow investors to identify information-rich insider buying activity.
The most important tip would be to look for clusters of insider buying, which usually suggest that there is a consensus among insiders that their companies’ shares are undervalued. Another highly important tip would be to ignore insider transactions conducted under pre-arranged trading plans, as past research concludes that spur-of-the-moment insider purchases tend to generate higher returns than those conducted under trading plans. Last but certainly not least, insider trading watchers need to look for insider trading conducted by long-time insiders purchasing shares for the first time; there definitely must be a strong reason why insiders decide to acquire a new stake after serving at their companies for years. That said, the following article will discuss fresh insider buying witnessed at three companies, as well as some noteworthy insider selling registered at two other companies.
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).
Producer of Ready-Mixed Concrete Sees Insider Buy Shares After Two Years of Muted Insider Buying Activity
According to the insider trading database run by Insider Monkey, US Concrete Inc. (NASDAQ:USCR) had not witnessed any insiders purchase shares since early 2014 until this week. Niel L. Poulsen, Executive Vice President of Southeast Division at US Concrete, snapped up 18,000 shares on Monday for $56.00 each. After the Monday purchase, Mr. Poulsen currently holds a stake of 41,481 shares.
The insider buying comes shortly after the producer of ready-mixed concrete released a weaker-than-anticipated second-quarter earnings report. Several rock and sand construction aggregates companies also recently reported weak earnings reports, raising questions about the construction activity in the United States. US Concrete Inc. (NASDAQ:USCR)’s consolidated revenue grew by 12.7% year-on-year to $275.8 million, but missed analysts’ estimates of $294.7 million. In June, the company acquired ready-mixed concrete producer NYCON Supply Corp., which serves high- and mid-rise projects in New York City through two concrete batch plants and a fleet of 38 trucks. US Concrete shares are 5% in the green year-to-date. Royce & Associates, founded by Chuck Royce, cut its stake in US Concrete Inc. (NASDAQ:USCR) by 84% during the June quarter to approximately 38,000 shares.
The second page of this article will display two companies with fresh insider buying, while the third page will discuss noteworthy insider selling at two other companies.