Much research shows that insiders’ purchases tend to outperform broader market benchmarks by a wide margin on aggregate, which explains why individual investors pay close attention to insider trading behavior. Although corporate insiders have only one reason for buying their companies’ stock, it does not necessarily mean that every insider purchase represents a strong buying signal. As a general rule, directors and executives buy their own company’s stock because they think the stock is undervalued, but the key word here is “think”. For that reason, individual investors should try to identify clusters of insider buying, which minimize the likelihood of insiders making uninspired purchases. The Insider Monkey team has issued numerous articles that disclose clusters of insider buying, which are definitely worth investors’ attention. That being said, the following article will discuss several noteworthy insider purchases, as well as clusters of insider buying, recently witnessed at three public 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).
Let’s kick off our discussion by looking into the insider buying activity registered at Welltower Inc. (NYSE:HCN). Chief Executive Officer Thomas J. DeRosa purchased 33,150 shares on Tuesday at a price of $61.19 per share and lifted his overall holding to 192,052 shares. Some readers closely watching Welltower might have asked themselves why the CEO did not purchase shares when they were trading below $54 per share earlier this month. A short answer would be that “he couldn’t”, because of a possible blackout period ahead of the release of its fourth-quarter earnings report.
Welltower Inc. (NYSE:HCN) is a real estate investment trust (REIT) that owns seniors housing and post-acute communities and outpatient medical properties in the United States, Canada and the United Kingdom. The REIT derives the majority of its revenues from operating lease rentals, and resident fees and services. The REIT’S net operating income from continuing operations totaled $2.24 billion in 2015, up from $1.94 billion in 2014 and $1.63 billion in 2013. Its net income increased to $818.34 million from $446.75 million registered in 2014 and $78.71 million – in 2013. Therefore, Welltower has been growing at a solid pace in recent years. Moreover, the REIT’s Board of Directors recently increased the annual cash dividend to $3.44 per share, or $0.86 per share quarterly, from $3.30 per share paid last year. Welltower’s share price has declined by 18% over the past 12 months. A total of 23 hedge funds tracked by Insider Monkey were invested in the REIT at the end of 2015, amassing a mere 2.40% of its outstanding common stock. Jeffrey Furber’s AEW Capital Management upped its stake in Welltower Inc. (NYSE:HCN) by 48% during the December quarter to 3.77 million shares.