The volume of both insider buying and insider selling declined last week compared to the volume registered in the prior week. The decrease in insider trading activity can be explained by the ongoing fourth-quarter earnings season. However, it is also important to note that last week’s volume of insider selling has been the lowest weekly volume in the past four years or so. As a general rule, individual investors pay more attention to insider buying than insider selling, and rightly so. Corporate insiders can sell shares for a wide range of reasons, some of which are not necessarily related to their companies’ prospects, but they tend to buy stock for one straightforward reason: they believe that their companies’ stock is undervalued by the market. The Insider Monkey team pinned down three companies that witnessed several noteworthy insider purchases over the past several days, so this article will discuss those insider purchases.
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.
General Electric Company (NYSE:GE) saw an executive make a big purchase this week. Senior Vice President Alex Dimitrief reported purchasing a new stake of 65,272 shares on Monday at a cost of $28.04 per share, which is held via his 401(k) plan. The executive also holds a direct ownership stake of 17,896 shares. In April 2015, the company revealed its plans to cut the size of its financial services businesses and focus on its industrial businesses instead. Earlier this month, General Electric reported total industrial segment revenue of $108.80 billion for fiscal year 2015, compared with $109.73 billion reported for the prior year. The decrease was mainly due to a decrease in revenue generated from its oil and gas business, which suffered through declines in orders, project commencement delays, and pricing pressures. General Electric Company (NYSE:GE)’s management anticipates generating earnings per share in the range of $1.45 to $1.55 for fiscal year 2016, while analysts anticipate the company to post earnings of $1.50 per share. The latter figure yields a forward price-to-earnings multiple of 18.76, which is somewhat above the average of 15.38 for the companies included in the S&P 500 benchmark. GE’s promise and desire to return to its industrial roots might attract new investor interest, but it remains to be seen how skillful the company executes its transformation plan. The number of hedge funds tracked by Insider Monkey with positions in GE grew to 74 from 70 during the July-to-September period. Billionaire Nelson Peltz of Trian Partners was among the managers who initiated a new position in General Electric Company (NYSE:GE) during the third quarter, holding 90.57 million shares as of September 30.