Board Member at Beleaguered Burrito Chain Buys Shares After Barron’s Releases Grim Cover Story, Plus Other Noteworthy Insider Trading Activity

Heavy insider buying usually implies that corporate insiders are bullish on their company’s future prospects, or that they find their company’s shares severely undervalued by Mr. Market. Past research finds that insider purchases tend to earn an abnormal return of more than 6% per annum, which represents a strong argument in favor of keeping track of insider buying activity. Of course, this does not mean each insider earns an abnormal return in excess of 6% each year, but the term “abnormal return” represents a strong piece of evidence that insider buying is worth monitoring.

However, retail investors monitoring insider trading behavior need to keep in mind that insiders are restricted from engaging in “short-swing” transactions, which means that insiders cannot perform opposing transactions within a six-month period (e.g. buying 10,000 shares and then selling shares within a five-day timeframe). Hence, one could arrive at the conclusion that insider trading metrics are mostly suitable for long-term-oriented investors, as Board members and executives are acting as long-term investors themselves. Insider Monkey compiles lists of noteworthy insider transactions on a daily basis, thus enabling investors and readers to find attractive investment opportunities based on insider trading metrics. Without further ado, let’s proceed to the discussion of notable insider trading activity reported with the SEC on Monday.

At Insider Monkey, we’ve developed an investment strategy that has delivered market-beating returns over the past 12 months. Our strategy identifies the 100 best-performing funds of the previous quarter from among the collection of 700+ successful funds that we track in our database, which we accomplish using our returns methodology. We then study the portfolios of those 100 funds using the latest 13F data to uncover the 30 most popular mid-cap stocks (market caps of between $1 billion and $10 billion) among them to hold until the next filing period. This strategy delivered 18% gains over the past 12 months, more than doubling the 8% returns enjoyed by the S&P 500 ETFs.

Executive at Battered Qualcomm Buys Sizable Block of Shares Amid High Uncertainty

Although we discussed a minor insider purchase at QUALCOMM Inc. (NASDAQ:QCOM) last week, we thought it would be reckless to ignore a significantly larger purchase reported on Monday. Cristiano R. Amon, Executive Vice President of Qualcomm Technologies Inc. – a subsidiary of Qualcomm – and President of QCT, purchased 18,815 shares on Friday at prices varying from $53.11 to $53.15 per share. Mr. Amon currently owns an aggregate of 22,039 shares after the purchase.

The shares of QUALCOMM Inc. (NASDAQ:QCOM) have plunged by 22% in the past three months after a series of negative news events hit the airwaves regarding the company’s unfair patent licensing practices. First, the South Korean Fair Trade Commission fined the chipmaker $853 million in late-December for violating antitrust laws. The Korean antitrust regulator concluded that Qualcomm breached antitrust laws by limiting competitors’ access to its patents, as well as found that the chipmaker forced mobile-phone manufacturers into unfair license agreements by refusing to supply critical chips to the companies that wouldn’t agree to Qualcomm’s terms. Then the U.S. Federal Trade Commission started an enforcement action against Qualcomm in mid-January following an investigation of the company’s licensing practices. Last but not least, news emerged that Apple Inc. (NASDAQ:AAPL) sued Qualcomm for roughly $1 billion, alleging the chipmaker charged the iPhone maker royalties for technologies Qualcomm had “nothing to do with.” As the Wall Street Journal reported, Apple’s allegations state that Qualcomm “leveraged its monopoly position as a manufacturer of baseband chips, a critical component used in cellphones, to seek onerous, unreasonable and costly terms for patents.” After considering all that has just been said, would it make sense to follow the insider’s bullish move? Only time will tell. Ken Fisher’s Fisher Asset Management reported owning 9.69 million shares of QUALCOMM Inc. (NASDAQ:QCOM) through the round of 13F filings for the December quarter.

The next two pages of this article cover fresh insider buying and selling observed at four other companies.

CEO of Beaten-Down Generic Drug Maker Purchases Shares

The man in charge of Lannett Company Inc. (NYSE:LCI) purchased a large block of shares earlier this week. Chief Executive Officer Arthur P. Bedrosian snapped up 10,000 shares on Monday at a price of $20.00 per share, a purchase that lifted the CEO’s ownership to 688,909 shares.

The manufacturer of generic pharmaceuticals has seen its market capitalization plunge by a disturbing 63% in the past two years. Lannett Company Inc. (NYSE:LCI)’s shares were seriously hit in early-November, when Bloomberg published an article revealing that, in connection with the U.S. Department of Justice’s investigations into Lannett and other generic drug makers, U.S. prosecutors might file criminal charges for suspected price collusion. According to the article, the grand jury probe focused on whether executives agreed among themselves to raise prices. Lannett’s shares fell by around 27% on that news. Nonetheless, Mr. Bedrosian said the federal antitrust investigation into potential price collusion would find that his company acted in full compliance with all applicable laws and regulations. Considering the CEO’s recent purchase of shares, he’s certainly putting on a brave face to the investor community, which should be heartening to Lannett investors. Ken Griffin’s Citadel Advisors added a 118,530-share stake in Lannett Company Inc. (NYSE:LCI) to its portfolio during the third quarter.

Board Member at Beleaguered Burrito Chain Buys Shares After Barron’s Releases Grim Cover Story

One member of Chipotle Mexican Grill Inc. (NYSE:CMG)’s Board of Directors also purchased a block of shares this week. Board member Matthew H. Paull bought 400 units of common stock on Monday at a price tag of $397.71 each, lifting his overall holding to 416 shares. The beleaguered burrito chain added Mr. Paull to its Board of Directors in late-December in a move to satisfy activist investor Bill Ackman, whose hedge fund Pershing Square initiated a 9.9%-stake in the company in September.

The insider purchase comes immediately after Barron’s released a grim cover story about Chipotle Mexican Grill Inc. (NYSE:CMG), which said that the shares of the burrito chain could fall by as much as 35% next year. “We see no reason to doubt that food safety at Chipotle is improving and that fans can eat there with confidence. We have reservations, however, about the safety of earnings forecasts and the share price,” said the cover story. Barron’s anticipates Chipotle’s shares will fall 10% this year, though the decline could reach as much as 35% in a worst-case scenario. Chipotle Mexican shares are down by 11% in the past year. Mr. Ackman’s Pershing Square owned 554,213 shares of Chipotle Mexican Grill Inc. (NYSE:CMG) at the end of September.

The final page of this insider trading article discusses fresh insider selling observed at two companies.

Long-Serving Board Member of Leading Manufacturer of Water Heaters Sells Shares

A member of A. O. Smith Corp (NYSE:AOS)’s Board offloaded a sizable block of shares at the beginning of the week. Paul W. Jones, a Director at the company since 2004, discarded 44,490 shares on Monday at a price of $49.47 per share. Mr. Jones currently owns a total of 145,233 shares following the Monday sale.

The shares of the manufacturer of residential and commercial gas, gas tankless and electric water heaters, as well as water treatment products have gained 57% in the past year. A. O. Smith Corp (NYSE:AOS)’s shares have jumped by 325% in the past five years, which possibly explains the long-serving Director’s decision to offload some shares. The management of the manufacturer of water heaters, boilers, and water treatment products anticipates organic revenue growth of 8% for the foreseeable future, while some analysts expect the company’s bottom-line to grow at an even faster rate due to margin expansion from price increases, operating leverage, and the accretive use of free cash flow. Charles Paquelet’s Skylands Capital reported ownership of 16,000 shares in A. O. Smith Corp (NYSE:AOS) through the current round of 13F filings.

Executive at Mueller Water Products Sells Shares After Earnings Release

One member of Mueller Water Products Inc. (NYSE:MWA)’s executive team also discarded a large amount of shares on Monday. Evan L. Hart, Chief Financial Officer and Senior Vice President since mid-July 2008, sold 150,000 shares on Monday at prices ranging from $12.87 to $13.78 per share, a sale that trimmed Mr. Hart’s ownership to 270,065 shares.

The insider sale comes shortly after Mueller Water Products Inc. (NYSE:MWA) released a seemingly disappointing earnings report for its fiscal first quarter ended December 31, as both revenue and EPS missed estimates. Earlier this year, the company announced plans to become a pure-play water infrastructure company and agreed to sell its Anvil International business to a private-equity firm for $315 million in cash. Anvil International is a North American manufacturer of pipe fittings and system components. Going back to the freshly-released earnings report, the December quarter was the company’s 18^th-consecutive quarter of year-over-year margin expansion. The shares of Mueller Water Products have gained 59% in the past 12 months. Royce & Associates, founded by Chuck Royce, was the equity holder of 2.11 million shares of Mueller Water Products Inc. (NYSE:MWA) at the end of the third quarter.

Disclosure: None