In this article, we will take a detailed look at the 10 Underperforming Stocks Insiders are Buying.
Legendary investor Peter Lynch in his famous book “One Up On Wall Street” talked in detail about the importance of keeping tabs on insider buying and why insiders buy or sell their company shares. In this book Lynch wrote something that became one of the most popular quotes in circles tracking corporate insider buying and selling:
“There are many reasons that officers might sell. They may need the money to pay their children’s tuition or to buy a new house or to satisfy a debt. They may have decided to diversify into other stocks. But there’s only one reason that insiders buy: They think the stock price is undervalued and will eventually go up.”
Importance of Paying Attention to Insider Buying: Lessons from Peter Lynch
But there’s much more to this book than just this quote. Lynch said that when you are tracking insider buying activity, you should pay more attention to corporate officers from “lower echelons” of companies buying shares. That’s because a when a CEO or President who already earns millions in salary and benefits buys some of his company shares, that does not mean much when compared to a corporate officer with $45,000 salary buying $10,000 worth of stock.
Lynch said when insiders are buying like “crazy” you can be certain, “at a minimum,” that the company will not go bankrupt in the next six months. Mostly importantly, according to Lynch, when a stock falls after significant insider buying, you should take this as a buying opportunity and understand that you are able to buy the stock cheaper than the company insiders did.
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Is There Any Link Between Insider Buying/Selling and Stock Returns?
There have been several academic papers published establishing the link between insider buying/selling and stock returns. More often than not researchers were able to conclusively deduce from their findings that when a stock is seeing massive insider buying, it’s a positive sign. A research report by Catalyst Capital Advisors takes a look at such academic studies and says that researchers at Wharton, Harvard, University of Michigan, and University of Chicago found that investing strategies based on insider buying beat the broader market over longer periods of time. The report also said that technical back testing using insider buying data from 2003 to 2010 confirmed that an investing strategy mimicking insider buys outperformed the market by significant markets. The research paper also established that when analyzing insider buying activity, paying attention to insider roles matters.
“Returns can be maximized by evaluating the type of insider purchasing shares. Investing based on top executive cluster buying generates a 200 basis point improvement over a general insider buying strategy while outperforming the market (S&P 500 index) by greater than 11%.”
Insider Monkey’s research also provides an important insight into the usefulness of tracking insider activity. Insider Monkey’s monthly newsletter and portfolio that focuses on activist hedge funds, insider trading and stock picks from hedge fund investor newsletters and conferences returned 199.2% between March 2017 and March 12, 2024 and outperformed the S&P 500 ETFs’ 144.9% gain by more than 54 percentage points.
Photo by Mohamed Hadji on Unsplash
Cluster Buying
Another important angle in insider buying is cluster buying, where a stock is bought by a large group of directors and officers at the same time.
“Investing based on top executive cluster buying generates a 200 basis point improvement over a general insider buying strategy while outperforming the market (S&P 500 index) by greater than 11% Grouping firms with top executive buying by the number of shares traded during the month demonstrates that returns are maximized as trade volume increases. Firms with top executive insider buying and trade volumes greater than 10,000 shares during that month outperform the by greater than 25%, on average.”
Insider Buying Activity After Earnings: Making Use of Market Reaction
Investors usually think insiders, by virtue of their positions at their companies, have the foreknowledge of events and they buy and sell stocks based on this factor only. But an interesting study conducted in 2020 showed that insiders often buy and sell shares after market reactions following earnings reports. Stocks usually react positively or negatively after earnings, and insiders assess this reaction and buy and sell shares accordingly. The research used insider trading transactions data in the US from 2003 until 2016. As we are about the enter the Q1’2024 earnings season, it’s important to keep track of insider buying and selling activity of companies immediately after their earnings reports.
For this article we first used a stock screener to identify stocks which are down about 10% or more year to date and saw insider buying activity over the past couple of weeks. From these stocks we picked companies with the highest insider buying activity in terms of dollar value. Top names in the list include Walgreens Boots Alliance Inc (NASDAQ:WBA), Gray Television, Inc (NYSE:GTN) and Clearway Energy Inc Class C (NYSE:CWEN).
10. Volato Group Inc (NYSE:SOAR)
Number of Hedge Fund Investors: N/A
Luxury private jets company Volato Group Inc (NYSE:SOAR) is one of the underperforming stocks that are seeing insider buying activity. On March 28, Volato Group Inc’s (NYSE:SOAR) CEO Matt Liotta bought 3,000 Volato shares at $3.53 per share. Since then the stock is down by about 9%.
9. Stratus Properties Inc (NASDAQ:STRS)
Number of Hedge Fund Investors: 2
Stratus Properties Inc (NASDAQ:STRS) shares are down by about 24% so far this year. But the stock recently saw insider purchasing activity when its director Laurie L. Dotter bought 265 shares of Stratus Properties Inc (NASDAQ:STRS) at $22.83 per share. The total value of this transaction was around $6050.
As of the end of the last quarter of 2023, two hedge funds had stakes in Stratus Properties Inc (NASDAQ:STRS).
In addition to STRS, insiders are also buying Walgreens Boots Alliance Inc (NASDAQ:WBA), Gray Television, Inc (NYSE:GTN) and Clearway Energy Inc Class C (NYSE:CWEN).
8. Oncternal Therapeutics Inc (NASDAQ:ONCT)
Number of Hedge Fund Investors: 4
Oncternal Therapeutics Inc (NASDAQ:ONCT) is one of the underperforming stocks this year gaining interest from insiders. As of the end of the last quarter of 2023, four hedge funds out of the 933 funds tracked by Insider Monkey reported owning stakes in Oncternal Therapeutics Inc (NASDAQ:ONCT). Oncternal Therapeutics Inc (NASDAQ:ONCT) stock is down 18% so far this year.
Robert James Wills, a board member at Oncternal Therapeutics Inc (NASDAQ:ONCT), on March 28 bought 6,914 shares of Oncternal Therapeutics Inc (NASDAQ:ONCT) at $8.48 per share. Since this transaction the stock price is flat.
Last month, the company’s management talked about key financial details and shared progress on some drugs during the latest earnings call:
“Our total operating expenses for the fourth quarter were $9.9 million, which included $2.2 million in noncash stock-based compensation expense. Total operating expenses for the full year were $42.5 million, which included $7.5 million in noncash stock-based compensation expense. In the fourth quarter, research and development expenses totaled $6.7 million, and general and administrative expenses totaled $3.2 million. For the full year, research and development expenses totaled $29.8 million, and general and administrative expenses totaled $12.7 million.
Net loss for the fourth quarter was $9.2 million, or a loss of $3.11 per share, basic and diluted. For the full year, our net loss was $39.5 million, or a loss of $13.43 per share, basic and diluted. As of December 31, 2023, we had 2.9 million shares of common stock outstanding with $34.3 million in cash, cash equivalents and short-term investments and no debt. We believe these funds will be sufficient to fund our operations into the first quarter of 2025. With respect to upcoming milestones, we remain on track. For ONCT-534, our lead DAARI product candidate, we expect to present initial clinical data late in the second quarter of 2024 with additional data readouts in the fourth quarter of 2024. For ONCT-808, our ROR1 autologous CAR T, we expect to report a clinical data update mid-2024 with additional data readouts in the fourth quarter of 2024.”
Read the full earnings call transcript here.
7. Five Star Bancorp (NASDAQ:FSBC)
Number of Hedge Fund Investors: 6
Five Star Bancorp (NASDAQ:FSBC) is seeing heavy insider buying activity this year despite Five Star Bancorp’s (NASDAQ:FSBC) shares being down 17% so far in the period.
On March 28, 2024, Larry Eugene Allbaugh, a director and 10% owner at Five Star Bancorp (NASDAQ:FSBC), bought 137,931 shares of Five Star Bancorp (NASDAQ:FSBC) at $21.75 per share. On the same day, another director at Five Star Bancorp (NASDAQ:FSBC), Robert Truxtun Perry-Smith, bought 80,460 FSBC shares. Since then the stock is down 2%.
Like FSBC, insiders are also buying Walgreens Boots Alliance Inc (NASDAQ:WBA), Gray Television, Inc (NYSE:GTN) and Clearway Energy Inc Class C (NYSE:CWEN).
6. Altus Power Inc (NYSE:AMPS)
Number of Hedge Fund Investors: 14
Renewable energy company Altus Power Inc’s (NYSE:AMPS) stock has fallen 28% so far this year.
Altus Power Inc ‘s(NYSE:AMPS) co-founder and co-CEO Gregg J. Felton on March 28 piled into 12,500 shares of Altus Power Inc (NYSE:AMPS) at $4.78 per share. The total worth of this transaction was $59,750. Since then the stock is up 2.3%.
5. Titan Machinery Inc (NASDAQ:TITN)
Number of Hedge Fund Investors: 16
North Dakota-based agricultural and construction equipment company Titan Machinery Inc (NASDAQ:TITN) has seen its shares tank 16% this year. On April 1, Titan Machinery Inc’s (NASDAQ:TITN) CFO Robert Larsen, bought 417 shares of Titan Machinery Inc (NASDAQ:TITN) at $24.00 per share. Since then the stock is almost flat.
4. Concentrix Corp (NASDAQ:CNXC)
Number of Hedge Fund Investors: 20
Customer experience solutions company Concentrix Corp (NASDAQ:CNXC) ranks fourth in our list of the top underperforming stocks this year with recent insider purchases. The stock is down about 40% this year.
Kathryn Hayley, a director at Concentrix Corp (NASDAQ:CNXC), bought 379 shares at $65.96 per share. The transaction took place on April 1. Since then the stock is down 8%.
FPA Queens Road Small Cap Value Fund stated the following regarding Concentrix Corporation (NASDAQ:CNXC) in its fourth quarter 2023 investor letter:
“Concentrix Corporation (NASDAQ:CNXC) is one of two top customer experience (CX) vendors globally. The company started off managing call centers but has since evolved into a high-tech business process outsourcer (BPO) that also designs and runs customer-facing websites and apps, integrates the data, and optimizes a client’s customer interactions. CX is a relatively new business, and Concentrix has been acquiring smaller competitors. In March, 2023 they bought WebHelp, a leading European CX player, for $4.8B in cash and stock. 26 We believe the WebHelp acquisition will help consolidate an industry where Concentrix and Teleperformance are the largest players. The company was spun out from TD Synnex, another of the Fund’s core holdings, and we have always been impressed with the company’s innovation and growth. The market is currently concerned about the potential of artificial intelligence to disrupt Concentrix’ core call center business, which has resulted in the underperformance of shares of all CX companies.”
3. Clearway Energy Inc Class C (NYSE:CWEN)
Number of Hedge Fund Investors: 22
New Jersey-based Clearway Energy Inc Class C (NYSE:CWEN) shares are down about 12% year to date through April 4.
Clearway Energy Inc Class C (NYSE:CWEN) saw insider buying activity on March 28 when Global Infrastructure Investors III, LLC, a director and 10% owner at Clearway Energy Inc Class C (NYSE:CWEN), snapped up 196,964 shares of Clearway Energy Inc Class C (NYSE:CWEN) at $22.86 per share. Since then the stock price has gained about 3%.
2. Gray Television, Inc (NYSE:GTN)
Number of Hedge Fund Investors: 23
Television broadcasting company Gray Television, Inc (NYSE:GTN) is one of the falling stocks insiders are buying this year. The stock is down 31% so far this year.
On March 28, Hilton H. Howell Jr., Gray Television, Inc’s (NYSE:GTN) CEO, bought 10,000 shares of tGray Television, Inc (NYSE:GTN) at $8.09 per share. The total dollar value of this transaction was $80,934. Since then the stock is down 0.79%.
As of the end of the fourth quarter of 2023, 23 hedge funds out of the 933 funds tracked by Insider Monkey had stakes in Gray Television, Inc (NYSE:GTN).
Miller Value Partners Income Strategy stated the following regarding Gray Television, Inc. (NYSE:GTN) in its fourth quarter 2023 investor letter:
“During the fourth quarter, we eliminated two positions comprising approximately 6% of the portfolio where new information suggested that our investment thesis was wrong. As active managers, we are able to proactively make adjustments in the portfolio, a key difference from strategies that are rebalanced to a benchmark on a set frequency. Two new additions included a starter position in wood products maker Boise Cascade (BCC) as well as the debt of Gray Television, Inc. (NYSE:GTN)n, a top operator of local television stations. We think Boise Cascade is a good business trading at a compelling valuation with a fortress balance sheet, while we believe markets are too pessimistic on Gray Television’s staying power.”
1. Walgreens Boots Alliance Inc (NASDAQ:WBA)
Number of Hedge Fund Investors: 31
Walgreens Boots Alliance Inc (NASDAQ:WBA) is one of the underperforming stocks this year with insider purchases. The stock is down about 30% so far this year.
On April 2, 2024, Manmohan Mahajan, who is Walgreens Boots Alliance Inc’s (NASDAQ:WBA) CFO and EVP, snapped up 6,000 shares of Walgreens Boots Alliance Inc (NASDAQ:WBA) at $19.38 per share.
As of the end of the last quarter of 2023, 31 hedge funds tracked by Insider Monkey had stakes in Walgreens Boots Alliance Inc (NASDAQ:WBA).
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Disclosure. None. 10 Underperforming Stocks Insiders are Buying was initially published on Insider Monkey.
