Struggling Nitrogen Fertilizer Producer and Two REITs Witness Heavy Insider Buying

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.

The next page of this insider trading article reveals the recent insider buying registered at Gaming and Leisure Properties Inc. (NASDAQ:GLPI) and CF Industries Holdings Inc. (NYSE:CF).

Gaming and Leisure Properties Inc. (NASDAQ:GLPI) saw one member of its Board of Directors purchase a sizable block of shares this week. Director David A. Handler snapped up 39,000 units of common stock on Tuesday for $25.35 each and currently holds an ownership stake of 302,015 shares. The self-managed Pennsylvania REIT was formed in 2013 after the spin-off of Penn National Gaming Inc. (NASDAQ:PENN)’s real estate assets. The REIT’s portfolio comprised 21 gaming and related facilities at the end of December 2015, most of which are leased back to a subsidiary of Penn under a triple-net operating lease with an initial term of 15 years. In July 2015, the REIT announced an agreement to acquire the real estate assets of Pinnacle Entertainment Inc. (NASDAQ:PNK) in an all-stock deal valued at $4.75 billion. The deal has not been completed yet, but the regulatory process for the Pinnacle transaction is in progress. Gaming and Leisure Properties generated total revenues of $575.05 million during 2015, down from $591.07 million a year earier. The number of hedge funds from our database with stakes in the company increased to 29 from 28 during the December quarter, accumulating 28.40% of the REIT’s outstanding common stock. Ahmet Okumus’ Okumus Fund Management acquired a new stake of 2.13 million shares in Gaming and Leisure Properties Inc. (NASDAQ:GLPI) in the fourth quarter of 2015.

CF Industries Holdings Inc. (NYSE:CF) registered a cluster of insider buying in the past several weeks, which is the kind of insider trading activity individual investors should look for. To begin with, Bert A. Frost, Senior Vice President of Sales, Distribution and Market Development, bought 8,000 shares on Wednesday at prices that ranged from $31.30 to $31.32 per share and boosted his stake to 51,037 shares. More importantly, Chief Executive Officer and President Anthony W. Will acquired 25,000 shares a day earlier at prices that fell between $32.68 and $32.81 per share and currently owns 129,420 shares. The manufacturer of nitrogen fertilizer and other nitrogen products saw a few more insiders buy shares in December 2015. The shares of the nitrogen fertilizer producer are down 46% over the past 52 weeks, mainly due to lower fertilizer prices. CF Industries Holdings has experienced increased pricing pressure lately, mainly due to excess global supply. China is the largest producer and consumer of fertilizers, so the recent devaluation of the Chinese currency and the country’s fast-expanding fertilizer production capacity, along with the depressed coal and natural gas prices, have weighted on nitrogen fertilizer prices. CF Industries Holdings generated net sales of $4.31 billion in 2015, down from $4.74 billion in 2014 and $5.47 billion in 2013. In the meantime, the stock trades at a forward P/E multiple of 9.78, which is substantially below the average for the companies included in the S&P 500. The hedge fund sentiment towards the stock was negative in the fourth quarter, as the number of money managers with positions in CF Industries dropped to 37 from 50. John Burbank’s Passport Capital reported owning 9.19 million shares of CF Industries Holdings Inc. (NYSE:CF) in its latest 13F filing.

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