Our investment strategy is based, upon other things, on tracking hedge fund and insider transactions. Our research has shown that the 15 most popular small-cap stocks among hedge funds historically have outperformed the market by 18 percentage points (see the details here). Recent studies on insider trading also demonstrated that investors can outperform the market by 7 percentage points by following certain insider purchases.
Insiders have strong incentives to diversify their wealth away from the company they work for — and therefore reduce their risk. Them ignoring the benefits of diversification and buying the company´s stock anyway can be interpreted as a signal of high confidence in the company. This is why, in addition to using hedge fund filings to develop investing strategies, we also maintain a database of insider purchases and take a brief look at significant insider buys to help investors decide if the company is worth further research. In this article we will look into five companies that have witnessed several purchases from one insider since the start of 2014.
The two first companies in my list, you might have already heard about: Opko Health Inc. (NYSE:OPK) and Aircastle Limited (NYSE:AYR). The first one has been experiencing constant insider purchases for years. The responsible for such activity is Dr. Phillip Frost, Chief Executive Officer and Chairman of the Board. The impact of his bullishness over the stock´s price, and the overall value of the company, has been certainly sizable.
The “hypertrader” at Opko Health Inc. (NYSE:OPK) seems not to have changed his strategy in 2014. Since the beginning of the year, Dr. Frost has declared approximately 80 purchases, having added more than 160,000 shares to his already large equity portfolio – purchases prices oscillated between $9.10 per share and $8.33 per share. He now holds 137,902,859 shares indirectly, through Frost Gamma Investments Trust, of which Dr. Frost is the trustee; plus an extra 15,490,546 indirectly held through The Frost Group, LLC, of which Frost Gamma Investments Trust is a principal member; and another 1,987,500, directly.
The other well-known case of hyper-trading is that of Aircastle Limited (NYSE:AYR). Over the past few months, Marubeni Corporation, which acts as a Board Director at Aircastle Limited (NYSE:AYR), has been consistently adding the company’s stock to its equity portfolio. The purchases started in August 2013, when Marubeni held 12.38 million shares, and continued throughout the rest of the year. January 2014 was no different: since the beginning of the year, Marubeni made at least 13 acquisitions, having incremented its position in the company by more than 320,000 shares. The investor paid average prices ranging from $18.49 per share to $15.99 per share, inclusive.
Marubeni’s holdings at Aircastle Limited (NYSE:AYR) now add up to 15,799,333 shares. Although the bullishness continues, the stock’s valuation at 123 times the company’s earnings (compared to an industry mean of 22x P/E) should lead investors to consider twice before buying this stock.
Third in this list is Calamos Asset Management, Inc (NASDAQ:CLMS), a micro cap –market cap is $241 million- asset management firm. Despite a poor performance, John Calamos Sr., founder, Chairman, Chief Executive Officer and Global Co-Chief Information Officer, has been placing strong bets on the stock for a long time now. Since the start of 2014, Mr. Calamos completed at least seven purchases (at $11.46-$11.50 per share), having incremented his holdings by more than 13,400 shares. He now owns 1,848,492* shares directly, and an additional 6,897.316, through his spouse. Trading at only three times the company’s earnings, versus a 23.3x industry mean, this looks like a good time to consider buying this stock.
Another interesting situation is that of DDR Corp (NYSE:DDR), a real estate investment trust with a market cap of more than $5.6 billion. Every week since the beginning of 2014, Alexander Otto, a Large Shareholder, has reported at least a couple of purchases. He added more than 466,000 DDR Corp (NYSE:DDR) shares to his equity portfolio between Jan. 2nd and Jan. 17th, having paid average prices ranging from $15.26 per share on the first transaction to $15.56 per share on the last of them.
Finally, there’s Synergy Resources Corp (NYSEMKT:SYRG) an American Stock Exchange-traded exploration stage company with a market cap of $686 million. Since the begging of the year, George Seward, Board Director, declared four stock purchases at the U.S. Securities and Exchange Commission, at prices ranging from $6.69 per share to $8.87 per share. He now owns 1,999,990 shares of Common Stock, 34,415 shares more than the ones he acknowledged holding by the end of 2013.
*Total represents 1,360,190.8740 shares of Class A Common Stock and 488,302 Restricted Stock Units (which will be settled solely in shares of Class A Common Stock).
Disclosure: Javier Hasse holds no position in any stocks mentioned