According to our research, stocks bought by insiders demonstrate a small outperformance effect, which seems logical given the fact that insiders are the most knowledgeable about their respective companies’ prospects. Although insider purchases in and of themselves would not be enough reason to buy a stock, we think they can serve as useful indicators (such as valuation ratios) when screening for attractive investments. Below are five companies whose stocks insiders have purchased recently.
Martin Shkreli, the CEO of Retrophin, Inc. (NASDAQ:RTRX), has bought shares of his company on a regular basis over the past year in varying amounts, with the most recent disclosure in early April showing a purchase of 10,800 shares. Currently, he is the second largest shareholder, with almost 3 million shares, or a 12% stake, valued at roughly $69 million. Retrophin is a $388.4 million market cap biopharmaceutical company that engages in the discovery, development, and commercialization of orphan drugs for the treatment of rare and life-threatening diseases. In addition to insider trading filings, we also maintain a database of 13F filings from hundreds of hedge funds. We use these filings to develop a small-cap investing strategy based on stocks popular with hedge funds, which has generated more than 37 percentage points of outperformance versus the S&P 500 from September 2013 through January 2014 (click here for more details). According to recent filings, Joseph Edelman of Perceptive Advisors was also bullish on Retrophin.
Ronald Sargent, Chairman and CEO of Staples Inc. (NASDAQ:SPLS), disclosed today that he bought 8,500 shares of the company. With 2.2 million shares, he is the largest shareholder in the $7.7 billion market cap operator of office product superstores. Hedge fund managers that share his bullish view on the stock include Richard Pzena of Pzena Investment Management, Russell Hawkins of Hawkins Capita and Ric Dillon of Diamond Hill Capital.
Maher Albitar, the Chief Medical Officer of Neogenomics Inc. (NASDAQ:NEO), disclosed in late March that he purchased 14,492 shares of the company, bringing his stake to 48,492 shares, or a 0.1% stake. Neogenomics is a $177.8 million market cap company that operates a network of cancer-focused testing laboratories providing genetic and molecular testing services. Hedge fund managers that own the stock include Carl Wiese of Grow Partners, Ken Griffin of Citadel Investment Group and Israel Englander of Millennium Management.
R Lesli Gilbert, an executive vice president of Store and Operations at Wet Seal Inc. (NASDAQ:WTSL), disclosed purchasing 10,000 shares of the company, for a total stake of 99,929 shares. Wet Seal is a $102.4 million market cap multi-channel retailer of apparel and accessories for female consumers. Greg Taxin of Clinton Group, Joe Huber of Huber Capital Management and Cliff Asness of AQR Capital Management are the three largest shareholders of the company among the hedge funds we track.
Over a six week period beginning in mid-March, Willem Mesdag, a director at Destination XI Group (NASDAQ:DXLG) as well as the manager of Red Mountain Capital, disclosed purchasing a total of 2.7 million shares in the company, bringing his total stake to 7.5 million shares and making him the largest shareholder among the hedge fund managers we track. Destination XI is a $280.8 million market cap specialty retailer of big and tall mens apparel in the U.S., England and Canada. Other hedge fund managers that are bullish on the company include Glenn Krevlin of Glenhill Advisors, Christopher Shackelton and Adam Gray of Coliseum Capital and Phil Frohlich of Prescott Group Capital Management.