When choosing securities based on insider trading metrics, retail investors would be wise to pay close attention to several key features that can differentiate informative insider transactions from worthless transactions. As the saying goes, directors and executives mostly buy shares of their own companies on the open market because they believe those securities are undervalued. Some companies may also require newly-appointed leaders to buy and hold a specific amount of shares, but this type of insider buying activity may also serve as a mild bullish signal (i.e. such purchases show that those newly-appointed leaders will act in the best interest of shareholders). Meanwhile, insider selling is much more difficult to interpret, as corporate insiders can unload shares for a wide array of reasons such as tax requirements, diversification plans or cash needs. Thus, insider trading watchers should not interpret each insider sale as a sign of tumultuous times ahead. Having this in mind, let’s proceed to the discussion of several noteworthy insider trading transactions recorded with the SEC on Monday.
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 Discount Retailer Had One Top Executive Buy Shares Last Week
Target Corporation (NYSE:TGT)’s Executive Vice President and Chief Financial Officer, Catherine R. Smith, purchased 5,000 shares on Friday for $67.82 each. Following the recent purchase, Ms. Smith currently holds a direct ownership stake of 16,868 shares.
The merchandise retailer has seen its market value plummet by 17% in the past month, as disappointing first-quarter financial results and weak guidance for the second quarter put pressure on the stock. The company’s poor financial and stock performance can be mainly attributable to the damaging influence of e-commerce giant Amazon.com Inc. (NASDAQ:AMZN), as well as weather-related issues. Target Corporation (NYSE:TGT), which offers its “guests” everyday essentials and fashionable merchandise at discounted prices, said first-quarter sales dropped 5.4% year-on-year to $16.2 billion due to the sale of the pharmacy and clinic businesses to CVS Health Corp (NYSE:CVS) in December 2015. Meanwhile, first-quarter comparable sales rose 1.2% year-on-year, marking the seventh consecutive quarter of same-store sales growth. Columbus Circle Investors, managed by Clifford G. Fox, has 2.36 million shares of Target Corporation (NYSE:TGT) in its equity portfolio as of the end of March.
Let’s move on to the next pages of this insider trading article, where we will discuss several noteworthy insider transactions registered at four other companies.