Anadarko Petroleum Corporation (APC), Micron Technology Inc. (MU), and Others Witness Heavy Insider Buying

With the disappointing start to the year for U.S equities, one should not be surprised by the sluggish insider selling activity and strong insider buying. The robust insider buying during the first trading weeks of 2016 appears to suggest that some stocks represent real bargains at the moment. Of course, investors should avoid “catching a falling safe”, as steadily-falling stocks do not always represent real bargains that are poised for a near-term turnaround. However, individual investors should always pay close attention to noteworthy insider buying, which usually tends to reveal strong buying opportunities. After all, an insider would now purchase his or her own company’s shares without anticipating a generous return. The Insider Monkey team has identified three companies that registered noteworthy insider buying last week, so let’s take a look at what might have propelled insiders’ bullishness.

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 (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.

Let’s kick off our discussion by examining the insider trading behavior witnessed at Anadarko Petroleum Corporation (NYSE:APC). Director Peter J. Fluor purchased 7,527 shares on Thursday at prices that ranged from $30.07 to $31.00 per share, lifting his overall holding to 112,285 shares. The Director purchased an additional 25,000 shares earlier this year. Anadarko Petroleum is one of the largest independent exploration and production companies in the world and has E&P activities in the United States, Mozambique, Algeria, Ghana, and other countries. The company’s revenue for the nine months that ended September 30 totaled $6.65 billion, a stark decline from the $15.29 billion in revenue reported for the same period a year earlier. The massive decrease was mainly attributable to lower average commodity prices and reduced natural-gas sales volumes, which was somewhat offset by higher oil and NGLs sales volumes. The decrease was also caused by asset divestitures. Although Anadarko Petroleum Corporation (NYSE:APC) had almost 40% of its remaining 2015 anticipated natural-gas sales volumes hedged on September 30, the challenging environment in the oil and natural gas markets will most likely keep beating down the company. However, the recent insider purchase might be perceived as an assurance that Anadarko Petroleum is well-positioned to tackle and endure the current environment. 70 hedge funds tracked by Insider Monkey were invested in the E&P company at the end of the third quarter, compared to 75 registered at the end of the second quarter. Ken Griffin’s Citadel Advisors LLC upped its position in Anadarko Petroleum Corporation (NYSE:APC) by 29% during the third quarter to 9.0 million shares.

The next page of this insider trading article details the insider purchases registered at Micron Technology Inc. (NASDAQ:MU) and TCP Capital Corp (NASDAQ:TCPC).

Micron Technology Inc. (NASDAQ:MU) had one of its executives make a big purchase this past week. Chief Financial Officer and Vice President of Finance Ernest E. Maddock snapped up a 10,000-share block on Thursday at prices that fell between $10.69 and $10.70 per share. After the recent purchase, the CFO currently holds 123,256 shares. The provider of semiconductor systems mainly operates four business units: Compute and Networking Business Unit (CNBU), Storage Business Unit (SBU), Mobile Business Unit (MBU), and Embedded Business Unit (EBU). The company’s net sales for the first quarter of 2016 dropped by 27% year-over-year, mainly as a result of lower CNBU sales, which were in turn impacted by lower DRAM average selling prices and lower gigabit sales volumes. The standard DRAM chips are commodity products; hence, their prices are mainly dictated by supply and demand. Analysts and financial hubs, including Morgan Stanley, believe that the DRAM market will continue to face weakness in the first half of 2016, but might experience a “modest recovery” in the second part of the year. Just recently, analysts at Morgan Stanley reiterated their ‘Overweight’ rating on the stock and price target of $18, citing limited downside. Most importantly, Morgan Stanley anticipates 80% upside to its current price target should chip prices stabilize and Micron’s cost-cutting efforts start to bear fruit. Micron’s stock has declined by 63% over the past year and currently trades at a very appealing price-to-earnings ratio of 7.10, which is substantially below the average of 15.38 for the S&P 500 family. The number of hedgies from our system with positions in Micron dropped to 71 from 79 during the September quarter. Sander Gerber’s Hudson Bay Capital Management reported owning 37.17 million shares of Micron Technology Inc. (NASDAQ:MU) via its 13F for the third quarter.

TCP Capital Corp (NASDAQ:TCPC) saw five different insiders purchase shares last week. To begin with, Director Eric J. Draut bought exactly 1,000 shares on Friday at a weighted average cost of $13.04, enlarging his stake to 50,532 shares. Chairman and Chief Executive Officer Howard M. Levkowitz purchased 5,000 shares on the same day at a price tag of $12.87 per share and currently holds a direct ownership stake of 89,841 shares. Officer of Advisors Michael E. Leitner snapped up 4,000 shares last week at a cost of $12.77 per share, lifting his holding to 9,400 shares. Moreover, President and Chief Operating Officer Rajneesh Vig acquired 4,000 shares on Friday at prices of between $12.95 and $12.98 per share. After the recent purchase, the President holds 27,750 shares. Last but not least, Director Brian F. Wruble added 3,000 shares to his stake, which now comprises 10,000 shares. The shares were acquired at a price of $12.86 per share.

TCP Capital operates as a closed-end management investment company and primarily invests in the debt of middle-market companies and small businesses, but also invests in senior secured loans, junior loans, mezzanine debts and bonds. The company reported total investment income of $107.25 million for the first nine months of 2015, up from $74.45 million reported for the same period of the prior year. Wall Street analysts anticipate that TCP Capital will generate earnings per share of $1.64 for fiscal year 2016, which yields a forward P/E ratio of only 7.99. This might serve as an explanation for the exploding insider buying witnessed at the company. A mere seven funds from our system were invested in the company at the end of the third quarter. Peter A. Wright’s P.A.W. Capital owns 150,000 shares of TCP Capital Corp (NASDAQ:TCPC) as of September 30.

Disclosure: None