3 Struggling Companies Witnessing Heavy Insider Buying Activity

All major U.S stock indexes experienced one of the best weeks in terms of gains in the past several months, and some companies’ insiders joined the crowd by buying more stock. Nevertheless, the insider buying activity slowed down last week relative to the previous one, while the ratio of insider buying over insider selling slightly increased week-over-week. The Standard and Poor’s 500 Index had one of its best weeks since December 2014, delivering a return of 3.3% for the week. It appears that investors are more confident in U.S equities at the moment, as the ambiguity and uncertainty around a potential rate hike and the pace of subsequent interest rate increases is slowly fading away. Without further ado, let’s check out the insider buying activity at three U.S-listed companies and the performance of those companies over the past few months.

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. We have been forward testing the performance of these stock picks since the end of August 2012 and they have returned 102% over the ensuing 38 months, outperforming the S&P 500 Index by more than 53 percentage points (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.

Southern Copper Corp (NYSE:SCCO) had its Chairman purchase two sizable blocks of shares last week. German Larrea Mota-Velasco acquired 54,000 shares on Thursday and 112,000 shares on Wednesday at a weighted average price of $26.40, boosting his overall holdings to 2.54 million shares. The integrated producer of copper and other minerals has seen its stock decline by 3% since the beginning of the year, mainly as a result of lower copper prices. The average price of copper on the London Metal Exchange was $2.59 per pound in the first nine months of 2015, down by 17.8% year-over-year. The demand for copper has been mainly impacted by global macroeconomic issues and weakening demand from China. It is also worth pointing out that China’s consumption of copper will make up 46% of the world consumption in 2015, according to estimates. Even so, Southern Copper Corp (NYSE:SCCO)’s management is confident in the long-term prospects and fundamentals of the copper market, which can also explain the Chairman’s bullishness at the moment. Ten hedge funds tracked by Insider Monkey were invested in the producer of copper at the end of the third quarter, accumulating a mere 0.40% of the company’s outstanding shares. Steve Cohen’s Point72 Asset Management acquired a 1.77 million-share stake in Southern Copper Corp (NYSE:SCCO) during the September quarter.

The second page of this daily insider trading article reveals the insider buying activity registered at Plains GP Holdings LP (NYSE:PAGP) and MAXIMUS Inc. (NYSE:MMS).

Let’s now turn our full attention to the notable insider purchase registered at Plains GP Holdings LP (NYSE:PAGP). Greg L. Armstrong, Chairman of the Board and Chief Executive Officer, purchased a 100,000-share block on Thursday at prices ranging from $10.90-to-$11.27. The CEO currently holds an ownership stake of exactly 200,000 shares. Plains GP Holdings owns and operates midstream energy infrastructure and offers logistics services for crude oil, natural gas liquids, natural gas and redefined products via its interest in master limited partnership Plains All American Pipeline LP. Although the company does not have significant direct exposure to petroleum prices, Plains GP’s performance is indirectly affected by the low oil-price environment, which affects production levels on the North American continent. The slump in crude oil prices that started during the second half of 2014 caused many producers to cut back on capital spending, which has significantly impacted Plains GP’s operations and performance thus far. The stock is 58% in the red year-to-date, so the CEO’s purchase might point to his confidence in the long-term prospects of the company. The number of hedge funds invested in the company climbed to 27 from 23 during the September quarter, with them accumulating 7.10% of its outstanding common stock in aggregate. Daniel S. Och’s OZ Management holds a 9.25 million-share position in Plains GP Holdings LP (NYSE:PAGP) as of September 30.

Lastly, we will examine the insider buying activity at MAXIMUS Inc. (NYSE:MMS), which has seen two insiders buy shares so far this month. Director Peter B. Pond snapped up a new stake of 14,375 shares on Wednesday at a weighted average price of $52.27. The Director also holds restricted stock units amounting to an additional 235,698 shares of common stock. Earlier this month, Chief Financial Executive Richard John Nadeau bought 1,000 shares at prices in the range of $53.10-to-$53.23, enlarging his stake to 6,889 shares. The provider of business process services (BPS) to government health and human services agencies had experienced a great year in terms of stock performance until the company released its fourth quarter and full fiscal year 2015 financial results on November 12, which sent the stock plummeting by over 21%. MAXIMUS’ fourth quarter revenue grew by 33% year-over-year to $578.7 million, while its GAAP diluted earnings per share remained flat at $0.53. However, the company slashed its GAAP EPS guidance for fiscal year 2016 to the range of $2.40-to-$2.70, from a range of $2.85-to-$3.05, citing “slower ramp and hence a reduced contribution from the U.K. Health Assessment Advisory Service contract”. Ten hedge funds monitored by our team had the stock in their portfolios at the end of the third quarter, compared to nine registered in the prior one. Jim Simons’ Renaissance Technologies owned 1.35 million shares in MAXIMUS Inc. (NYSE:MMS) on September 30.

Disclosure: None