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.
CymaBay Therapeutics Inc. (NASDAQ:CBAY) had one of its most highly-informed and influential executives purchase two sizable blocks of shares earlier this week. Sujal Shah, Chief Financial Officer since December 2013, bought 22,000 shares on Monday and 33,000 shares on Tuesday at a price of $1.39 per share. This was the first time Mr. Shah bought shares of CymaBay, and he currently owns a total of 75,000 shares. Retail investors should pay close attention to this kind of insider buying activity, considering that the CFO could have initiated a stake in 2014 or 2015, but did not buy shares until this week.
CymaBay Therapeutics is a clinical-stage biopharmaceutical company that develops therapies for the treatment of metabolic diseases with high unmet medical needs, which include serious rare and orphan disorders. The company has two main clinical development candidates at the moment, MBX-8025 and arhalofenate, so let’s take a thorough look at each of these candidates. MBX-8025 is being developed for the treatment of various orphan and liver diseases. Earlier this year, the company announced data from a Phase 2 clinical study that evaluated MBX-8025 in 13 patients with homozygous familial hypercholesterolemia (HoFH), which showed that only five patients experienced a meaningful decrease in low density lipoprotein (LDL-C). Therefore, CymaBay intends to provide additional proof-of-concept data before determining whether to continue the advancement of this drug for the treatment of patients with HoFH. In November, the company started a separate Phase 2 study of this candidate in patients with primary biliary cholangitis (PBC), which is anticipated to be completed by the end of this year.
Meanwhile, the company’s second candidate, arhalofenate, is being developed for the treatment of gout. This candidate has been studied in five Phase 2 clinical trials, which consistently demonstrated the drug’s ability to reduce gout flares and reduce uric acid. CymaBay has already completed end-of-Phase 2 discussions with the FDA, but the company plans to partner this drug before advancing into Phase 3 development. Shares of CymaBay have lost 77% in the past 12 months, which makes it economically unfeasible for the company to raise additional equity for advancement of its development candidates. There were seven hedge funds in our system with stakes in the company at the end of December, with them having amassed nearly 21% of its outstanding shares. Steven Cohen’s Point72 Asset Management L.P. owns 1.04 million shares of CymaBay Therapeutics Inc. (NASDAQ:CBAY) as of December 31.
Clayton Williams Energy Inc. (NYSE:CWEI) is yet another company that saw a top executive purchase shares this week. President Mel G. Riggs bought 4,000 units of common stock on Tuesday at a weighted average cost of $9.44, lifting his direct ownership stake to 14,588 units. Mr. Riggs, who has been with the company since 1984, is currently responsible for the general supervision, direction and control of the day-to-day business of Clayton Williams Energy, so he surely has a better understanding of what’s going on within the company than anyone.
Clayton Williams Energy is an independent oil and gas company engaged in the exploration and production of oil and natural gas, mainly in Texas and New Mexico. The shares of the company have advanced by 45% in the past five days, after the company borrowed $350 million from private equity firm Ares Management LP. Clayton Williams Energy used a portion of this sum to fully repay the outstanding indebtedness of $160 million under its revolving credit facility. The company added the remaining cash to its balance sheet, which will be used to fund operations and future development. At the same time, the credit facility was reduced to $100 million from $450 million. In exchange for the $350 million received from Ares Management, the company issued warrants to purchase 2.25 million shares of common stock at a price of $22.00 per share, which account for 18.5% of the company’s outstanding shares. It is important to note, however, that Clayton Williams Energy has to pay an interest rate of 12.5% annually, which appears to be quite a high price in exchange for avoiding bankruptcy. Ares Management LP also elected two members for the company’s Board of Directors in connection with the aforementioned deal.
With crude oil prices significantly higher than their February low of $26.21 per barrel and the freshly-inked deal with Ares Management (though at extremely unfavorable terms), Clayton Williams Energy will not join the list of 51 North American oil and gas producers that have filed for bankruptcy since the beginning of 2015. The independent oil and gas company has seen its shares decline by 78% in the past 52 weeks. A total of 11 money managers tracked by Insider Monkey were invested in the company at the end of 2015, and held 16% of its outstanding shares. Israel Englander’s Millennium Management reported ownership of 706,014 shares of Clayton Williams Energy Inc. (NYSE:CWEI) as of the end of 2015.