Retail investors may find it quite hard to find securities that are trading at reasonable prices or valuations that allow for the possibility of generating strong returns. Hedge fund behemoths and multi-billion-dollar asset managers have large-sized research teams that constantly look for investing opportunities among the pool of thousands of small-, mid- and large-cap stocks on the market today. But how can retail investors find reasonably-priced or undervalued stocks? As a general rule, heavy insider buying can point to some undervalued securities that may be poised for a turnaround, so it’s worthwhile to examine insider trading metrics as part of a broader stock analysis process. Insider Monkey processed a batch of Form 4 filings submitted with the SEC on Thursday and compiled a list of five companies that registered the most noteworthy insider trading transactions.
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).
This Heart Valve Manufacturer Saw Newly-Appointed Board Member Buy More Shares
Steven R. Loranger, appointed to Edwards Lifesciences Corp (NYSE:EW)’s Board of Directors in mid-March, purchased a stake of 5,000 shares at prices that ranged from $101.00 to $101.10 per share, which is held entirely by the Steven R. Loranger Revocable Trust. Mr. Loranger also holds a direct ownership stake of 1,941 shares.
The shares of the heart valve manufacturer have advanced by 147% in the past two years and are up by 25% thus far in 2016, so one should approach the purchase made by the newly-appointed Board member with caution. Put differently, the insider buying activity registered at Edwards Lifesciences Corp (NYSE:EW) may not be the type of buying investors should look for, as Mr. Loranger’s purchase could simply be aimed at assuring the market that his interests are fully aligned with those of the company’s shareholders. Just recently, analysts at Canaccord raised their price target on Edwards Lifesciences to $132 and reiterated their ‘Buy’ rating on the stock, citing “material earnings upside, namely in 2017”. Columbus Circle Investors, managed by Clifford G. Fox, owns 2.18 million shares of Edwards Lifesciences Corp (NYSE:EW) as of March 31.
The next two pages of this insider trading article will discuss the insider trading activity recently registered at four other companies.