Aside from analyzing the financials of companies, which involves the analysis of their balance sheets and quarterly earnings reports, some investors also monitor insider trading behavior to find hints about the future potential of companies. Corporate insiders usually have a better understanding of their company’s business and industry than the general public, and have more up-to-date insights about every aspect of their operations. While insiders are restricted from trading on material non-public information, they still have access to bountiful non-material information that non-insiders do not (e.g. the success of an ongoing marketing campaign, bottlenecks in the supply chain, etc.). While it has been a slow and quiet week for insider buying, there were a few insider purchases that certainly piqued our interest. Insider Monkey searched through dozens of Form 4 filings submitted with the SEC on Wednesday and found three companies with noteworthy insider buying.
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 imitating 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).
Let’s begin our discussion by looking into the insider buying activity at Actuant Corporation (NYSE:ATU), which had three different insiders purchase shares this week. Clusters of insider buying that involve three or more insiders usually point to strong buying opportunities, so retail investors should definitely take an in-depth look at Actuant. To start with, Eugene E. Skogg, Executive Vice President of Human Resources, purchased 10,000 Class A shares on Monday at prices ranging from $24.42 to $24.50 per share. Mr. Skogg was also granted 5,000 restricted stock units under the Actuant Corporation 2009 Omnibus Incentive Plan and holds an ownership stake of 110,319 shares. President and Chief Executive Officer Randal W. Baker snapped up 4,061 Class A shares on Monday at prices that ranged from $24.61 to $24.63 per share and also received 2,031 restricted stock units, which lifted his overall holding to 53,184 Class A shares. Last but not least, D. Mark Sefcik, Executive Vice President of Industrial Sector, bought 6,500 Class A units of common stock on the same day and received 3,250 restricted stock units, after which he now owns 61,832 Class A units of common stock.
Actuant Corporation (NYSE:ATU) is a diversified company that manufactures and markets a wide variety of industrial products and systems to several end markets. The company’s business operations primarily focus on three segments: the Industrial segment, which involves the design and distribution of hydraulic and mechanical tools; the Energy segment, which offers joint integrity products and services, offshore vessel mooring solutions, as well as rope and cable solutions to energy markets; and the Engineered Solutions segment, which primarily provides position and motion control systems to original equipment manufacturers in various on and off-highway vehicle markets, along with other products to the industrial and agricultural markets.
In mid-March, the company released its earnings report for the second quarter of fiscal year 2016 that ended February 29, reporting lower year-over-year sales and earnings as weakness persists in most of its end markets, especially in the oil and gas, mining, and agriculture end markets. Actuant Corporation reported consolidated sales of $263 million for the fiscal second quarter, down by 13% year-over-year due to lower core sales and foreign currency headwinds. The company’s fiscal second quarter net loss totaled $159.2 million, or $2.70 per share, significantly worse than the loss of $64.8 million, or $1.05 per share, reported for the same period of the prior fiscal year. Excluding the massive asset impairment charges and restructuring costs, earnings per share totaled $0.21 for the quarter, down from $0.28 per share a year earlier. The company’s management anticipates fiscal third quarter sales in the range of $290 million to $300 million and full-year sales in the range of $1.135 billion to $1.150 billion. Nonetheless, shares of Actuant are down by less than 1% since the beginning of 2016. The hedge fund sentiment towards the diversified company declined significantly in the December quarter, as the number of funds with stakes in the company dropped to nine from 14. Mason Hawkins’ Southeastern Asset Management upped its stake in Actuant Corporation (NYSE:ATU) by 18% during the final quarter of 2015, ending the year with 6.21 million shares.