All three major U.S. stock indexes reached all-time highs simultaneously this past week, which should lead to the expectation that the volume of insider selling would reach all-time highs as well. The last time the Dow Jones Industrial Average, Nasdaq and S&P 500 simultaneously closed at new highs was on December 31, 1999. Contrary to what one would anticipate, last week’s dollar volume of insider selling declined relative to the volume of selling registered in the previous week, whereas the volume of insider buying jumped week-over-week. This is great news for the investment community, as corporate insiders keep buying shares even though indexes are trading near record heights.
However, a high portion of insider buying likely occurred at struggling companies that may have disappointed investors with their financial results for the second quarter. After all, corporate insiders usually follow the pattern of buying low and selling high. While board members and executives can sell shares for a wide variety of reasons, they tend to buy shares in their own companies for one simple reason: they believe their companies’ shares are greatly underappreciated. Without further ado, let’s have a look at a set of noteworthy transactions reported with the SEC on Friday.
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).
Insider Buying at National Security Solutions Provider Despite Soaring Shares
To begin with, two different insiders of Kratos Defense & Security Solutions Inc. (NASDAQ:KTOS) bought shares this past week. William A. Hoglund, Chairman of the company’s Board, snapped up 50,000 shares on Wednesday and two separate batches of 75,000 shares each on Thursday and Friday at prices ranging from $5.55 to $6.00 per share. After the recent purchases, Mr. Hoglund currently owns 400,000 shares. Furthermore, President and Chief Executive Officer Eric M. DeMarco bought 8,904 shares on Tuesday at prices varying from $5.45 to $5.64 per share, lifting his overall holding to 431,070 shares.
Kratos Defense & Security Solutions Inc. (NASDAQ:KTOS) operates as a mid-tier government contractor at the forefront of the Department of Defense’s “Third Offset” strategy, an attempt to create new military capabilities that will counter competitors’ advances in precision weapons, long-range missiles and electronic warfare. The company has seen its market value skyrocket by 56% since the start of the year, but insiders keep buying shares. The company reported revenue of $168.2 million for the second quarter of fiscal year 2016 ended June 26, up by $7.7 million year-over-year. The increase was mainly driven by increased work in its satellite communications, ballistic missile targets, and training businesses. Royce & Associates, founded by Chuck Royce, owns 3.49 million shares of Kratos Defense & Security Solutions Inc. (NASDAQ:KTOS) as of the end of the second quarter.
The second page of this article will list two companies with fresh insider buying, while the final page of the article will discuss noteworthy insider selling registered at two other companies.