The history shows that corporate insiders’ purchases of their own companies’ stock tend to beat stock market gauges on aggregate. Corporate insiders, namely Board members and executives, usually purchase shares for one simple reason – they believe their companies’ shares are greatly undervalued by Mr. Market. This theory or statement appears to make perfect sense, as it is quite hard to come up with other explanations on why insiders would spend their hard-earned money to buy their own companies’ stock.
Another possible explanation involves stock ownership guidelines imposed by many companies, which require executives and Board members to own a certain amount of equity in their own companies. So one conclusion that can be drawn from the second possible explanation for insider buying is that retail investors should keep track of insider buying conducted by long-term serving employees. Meanwhile, corporate insiders sell shares for a wide variety of reasons beyond just their companies’ current development or future prospects, owing to the increased usage of equity-based compensation. Nonetheless, heavy insider selling, particularly in the form of clusters of selling, may serve as an indication that insiders believe their company’s share price is approaching or even exceeding a “correct” or “fair” value. That said, let’s look into several noteworthy insider transactions reported with the SEC on Monday.
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).
Liquidating Diversified REIT Registers Insider Buying
Winthrop Realty Trust (NYSE:FUR) has seen one Board member buy shares consistently over the past several weeks or so. Thomas F. McWilliams, a member of the company’s Board of Trustees since 2008, snapped up 2,000 shares on Thursday at $8.71 apiece, lifting his overall holding to 28,546 shares. Mr. McWilliams purchased an additional 2,000 shares in mid-July for $8.72 each.
The diversified real estate investment trust adopted a plan of liquidation in late April of 2014 in an attempt to maximize shareholder value. Winthrop Realty Trust (NYSE:FUR) holds 10 consolidated operating properties as of May 1, three of which are under contract for sale, eight equity investments and four loans receivable. In early July, the REIT announced the sale of its 550,000 square foot warehouse property located in Jacksonville, Florida for $10.50 million. The REIT has paid shareholders $7.75 per share in liquidating distributions since the adoption of its plan of liquidation. Jim Simons’ Renaissance Technologies LLC had 1.22 million shares of Winthrop Realty Trust (NYSE:FUR) in its portfolio at the end of March.
The Current CEO of This Low-Priced Company Buys Shares from Former CEO
The man in charge of Acorn Energy Inc. (OTCMKTS:ACFN) made a relatively sizable purchase this past week. President and CEO Jan H. Loeb purchased 93,637 shares on Friday at a price tag of $0.15 each, boosting his ownership stake to 1.06 million shares. Mr. Loeb purchased the shares in a privately negotiated transaction from the company’s former CEO, who resigned in early 2016.
The holding company focused on technology driven solutions for energy infrastructure asset management has seen the value of its stock gain 90% since the beginning of 2016. Acorn Energy Inc. (OTCMKTS:ACFN) provides sonar and acoustic related solutions for energy, defense and commercial markets through its DSIT Solutions Ltd. subsidiary, as well as power generator monitoring products and services through its OmniMetrix LLC subsidiary. The company’s revenue for the first quarter of 2016 increased by $1.05 million year-over-year to $4.76 million, reflecting increased revenue at both subsidiaries. The increase in revenue at DSIT was related to a $15.4 million project received in the first quarter of 2015 for Hull Mounted Sonar (HMS) systems and an Anti-Submarine Warfare (ASW) Trainer for an unnamed navy.
The second page of this article will discuss fresh insider selling recorded at three other companies.