According to several empirical studies on insider trading, stocks with more than one insider purchase over the past three months have the potential to outperform the broader indices. While you probably know Insider Monkey for its market-beating hedge fund newsletter, insider buying activity is another way to track the sentiment of the so-called “smart money.”
With that being said, two small-cap banks have seen multiple insiders buying in the month of November, and each should be on your radar. Let’s run through the transactions.
Farmers National Banc Corp (NASDAQ:FMNB) sports a market capitalization of about $120 million, and its stock price is nearly flat year-to-date. The bank holding company, which has operations in Central Ohio, has seen nine different insiders buy shares since the beginning of the month, ranging from Chief Lending Officer Joseph Gerzina to Directors Gregg Strollo and David Paull.
All in all, the nine transactions totaled a little more than 600 shares; Paull and fellow board member Ralph Macali now own the largest positions of the group, each with more than $150,000 worth of Farmers National stock. While the value of the moves doesn’t blow us away, the sheer quantity of insiders who bought in earlier this month is something we don’t see that often.
With a dividend yield of 1.9% at a payout ratio near 30%, there’s nothing too scary about Farmers National from an income standpoint, and the valuation is borderline cheap across the board. Earnings haven’t been booming post-recession, but the bank was able to generate noninterest income growth of 24% (yoy) in the third quarter. Be on the lookout for more activity from Farmers National execs.
First Merchants Corporation (NASDAQ:FRME), meanwhile, is another, slightly larger small-cap bank that has seen more than one bullish insider lately. On November 1st, Directors Gary Lehman and Patrick Sherman increased their stakes in the Indiana-based bank holding company to a little over 19,000 shares and 24,000, respectively. Both transactions were made at an average purchase price of $19.15 per share; the stock currently trades about 1.5% lower.
Like Farmers National, First Merchants pays a moderate dividend yield (1.1%) at a low payout of earnings (13%), and the multiples aren’t too out of place with peer averages. Earnings are expected to expand by 10% to 11% next year at both banks, so growth potential is there as well.
For anyone searching for lesser-known stocks in the regional banking industry, Farmers National and First Merchants might not be bad names to think about buying in to; plenty of insiders already are.