U.S equities inched lower on Monday and continue to sink today, as the plunge in crude oil prices and disappointing data coming out of China continues to weigh on the markets. Although the U.S economy is anticipated to get bigger this year, some analysts worry that slowing global economic growth could adversely impact the country in the medium term. Consequently, some investors are running away from equities at the moment, while others are transferring capital into more defensive corners of the market. Nonetheless, there is a camp of corporate insiders that ignores broader market concerns and heavily invests in stocks, particularly when others are fleeing. The Insider Monkey team identified three companies that had noteworthy insider buying activity last week, so let’s lay out those trades and discuss the recent performance of the companies in question.
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 (read more 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 kick off our investigation with Air Products & Chemicals Inc. (NYSE:APD), which saw one of its top executives buy shares this week. Chairman, President and Chief Executive Officer Seifi Ghasemi purchased 50,000 shares on Monday at prices that ranged from $125.37 per share to $127.84 per share. The CEO currently holds an ownership stake of 314,865 units of common stock. The shares of the supplier of industrial gases and equipment, and specialty and intermediate chemicals are down by 11% over the past 12 months, but are trading in positive territory thus far in 2016. The freshly-released earnings report for the first quarter of fiscal year 2016 that ended December 31 helped push the stock into positive territory. The company reported sales of $2.36 billion for the quarter, which marked a decrease of 8% year-over-year. The company’s underlying sales growth of 2% was offset by negative currency impact and lower contractual pass-through to customers. Despite the substantial decrease in the top-line figure, Air Products & Chemicals Inc. (NYSE:APD)’s net income increased by 12% year-over-year to $363.6 million.
The question some investors may ask at the moment is whether the stock represents an attractive investment opportunity. Analysts at UBS believe that Air Products & Chemicals is a defensive stock that can keep delivering double-digit EPS growth despite facing a slowing global economy. UBS has a ‘Buy’ rating on the stock, with a price target of $151. Nonetheless, investors should not overlook the company’s price-to-earnings multiples, which do not show too much upside, even factoring in that expected growth. For instance, the stock trades at a forward P/E multiple of 16.18, which is slightly above the ratio of 15.89 for the S&P 500 Index. Bill Ackman of Pershing Square was the largest equity holder of Air Products & Chemicals Inc. (NYSE:APD) within our database at the end of the third quarter, with a stake of 20.55 million shares.