The aggregate dollar value of insider buying in April was lower than the value recorded in any other month in the past year or so, mainly owing to the first-quarter earnings season. The February of 2016 registered the greatest dollar volume of insider buying in the past 12 months, which successfully signaled the sharp turnaround of U.S. equities that followed shortly. It is widely known that corporate insiders tend to act as contrarian investors, which serves as one of the primary explanations as for why their purchases outperform broader market benchmarks. Apparently, directors and executives buy securities in their own companies for one simple reason, which is that they believe those securities are trading at a huge discount to their “intrinsic” value. Insider Monkey processed all Form 4 filings reporting insider buying that were submitted with the SEC on Monday and pinpointed several noteworthy insider purchases.
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).
This Alternative Auto Parts Maker Had CFO Buy Shares on Friday
To start with, LKQ Corporation (NASDAQ:LKQ) saw one of its most informed executives buy shares last week. Dominick P. Zarcone, Chief Financial Officer and Executive Vice President, purchased 5,000 units of common stock on Friday at prices that fell between $31.74 and $31.77 per unit, lifting his overall ownership to 233,491 units. The insider purchase comes after the provider of alternative vehicle collision and mechanical replacement parts released a satisfactory first-quarter earnings report, which revealed a top-line figure that beat estimates and a bottom-line figure that met analysts’ expectations.
The shares of the alternative auto parts maker have gained 9% since the beginning of 2016 and are chasing their 52-week high of $34.26 reached at the end of April. LKQ Corporation (NASDAQ:LKQ)’s primary source of revenue comes from the sale of vehicle replacement products and related services to collision and mechanical repair shops, but the company also generates revenue from scrap sales and sales of ingots and sows. LKQ’s first-quarter parts and services revenue, which accounted for approximately 95% of total revenue, increased to $1.82 billion from $1.64 billion recorded in the first quarter of 2015. As strange as it may sound, low levels of fuel prices are anticipated to encourage more driving across the United States and other countries, which may eventually lead to more car accidents and more business for auto-parts specialists such as LKQ.
In late April, LKQ Corporation announced the completion of its acquisition of distributor and manufacturer of automotive glass products Pittsburgh Glass Works LLC, which operates roughly 120 distribution branches that serve more than 7,000 automotive glass retailer shops on the North American continent. Moreover, PGW also operates 12 manufacturing, fabrication and assembly facilities. Meanwhile, LKQ’s shares are changing hands at around 15.5-times expected earnings, notably above the forward PE multiple of 10.8 for the auto parts and equipment sector. Alan Fournier’s Pennant Capital Management owned 4.70 million shares of LKQ Corporation (NASDAQ:LKQ) at the end of December.