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The Insider Buying At These Companies May Represent Key Pieces Of The Investment Thesis Puzzle

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Some believe that the recent broader market pullback was just a simple correction, and that the bull market is set to resume its course. Meanwhile, others tend to think that the third quarter earnings season will trigger another round of selloffs in the U.S stock markets, with results being predicted to disappoint. It seems almost impossible to accurately predict where the market is heading from here, as there are numerous forces driving it. However, some corporate insiders have been boosting their holdings lately, which may suggest that their companies hold bright future prospects. The Insider Monkey team pinpointed three companies with heavy insider buying activity that might offer useful insights concerning their outlook. The companies in question are represented by CONN’S Inc. (NASDAQ:CONN), Ampliphi Biosciences Corp (NYSEMKT:APHB), and Aeropostale Inc. (NYSE:ARO).

Most investors can’t outperform the stock market by individually picking stocks because stock returns aren’t evenly distributed. A randomly picked stock has only a 35%-to-45% chance (depending on the investment horizon) to outperform the market. There are a few exceptions, one of which is when it comes to purchases made by corporate insiders. 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 the 15 most popular small-cap stocks among hedge funds outperformed the market by nearly a percentage point per month between 1999 and 2012. We have been forward testing the performance of these stock picks since the end of August 2012 and they have returned 118% over the ensuing 36 months, outperforming the S&P 500 Index by 60 percentage points (read the details here). The trick is focusing only on the best small-cap stock picks of funds, not their large-cap stock picks which are extensively covered by analysts and followed by almost everybody.

Let’s begin by examining the insider trades at CONN’S Inc. (NASDAQ:CONN), a specialty retailer of durable consumer goods. President and CEO Norman Miller reported the acquisition of 20,333 shares at an average purchase price of $24.89 on Monday. Following the completion of the transaction, the executive owns 90,214 shares. Furthermore, Douglas H. Martin, who has been serving as Director since 2003, reported purchasing a new stake of 12,000 shares at a price of $24.25 per share, which is owned by Roth IRA (i.e. Individual Retirement Arrangement). The Director also holds a direct ownership stake of 95,363 shares, while his children own 3,900 shares. Despite the fact that the shares of CONN’s have embarked on a steady downward trend since early-July, they are still 40% in the green year-to-date. However, it is hard to overlook the 38% loss incurred over the past three-month period. The company’s retail business has been doing great over the past few months, but its persistent credit issues have put great weight on the stock. Robert Pohly’s Samlyn Capital added a 1.46 million-share position in CONN’S Inc. (NASDAQ:CONN) to its portfolio during the second quarter.

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