Most investors are awaiting a fundamental catalyst to diminish their concerns about the potential impact of a slowing global economy on the U.S economy and put a halt to the equities sell-off. Just recently, hedge fund manager Ray Dalio suggested that the Federal Reserve is likely to reverse the course of its monetary tightening cycle. There are too many contradictory opinions flooding the stock market arena at the moment, so investors need to exhaustively digest all of the information. At this point in time, there is no reason to believe that the U.S economy is cooling down: the labor market is tightening, while the depressed crude oil prices will most likely boost consumer sentiment. In the meantime, certain companies witnessed noteworthy insider purchases in recent weeks, which can be interpreted as bullish signals from investors with the most knowledge of their companies. Hence, this article will focus on discussing the insider trading behavior at those companies and their recent performance.
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.
Campus Crest Communities Inc. (NYSE:CCG) had one of its insiders purchase a sizable block of shares last week. Director Raymond C. Mikulich acquired 10,000 shares on Friday at $6.77 apiece, lifting his overall holding to 91,900 shares. It should be mentioned that the Director has been gradually acquiring more shares over the past several months, so he clearly sees some value that has yet to be unleashed. On October 16, the real estate investment trust (REIT) that focuses on student housing agreed to be acquired by Harrison Street Real Estate Capital LLC for $6.90 in cash and a contingent consideration of approximately $0.13 for each share owned. The contingent consideration represents the net sale proceeds from the sale of the company’s ownership interest in the evo Montreal joint venture. The sale of Campus Crest Communities Inc. (NYSE:CCG)’s ownership interest in the joint venture was completed at the end of October, with its shareholders set to receive $0.12 per share from that transaction.
Moving on to a potential reason behind the Director’s decision to buy stock, it is highly likely that the Director is attempting to benefit from the discrepancy between the company’s current market price and the actual sale price. The stock trades $0.16 below the $6.90 figure, which is not too much if considering the downside associated with the potential failure of the deal. Hence, the recent insider buying activity at the REIT might point to high odds that the deal will go through. There were 11 hedge funds from our system with positions in the REIT at the end of the third quarter, which had accumulated 27% of its shares. Derek C. Schrier’s Indaba Capital Management holds 5.93 million shares of Campus Crest Communities Inc. (NYSE:CCG) as of September 30.