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Buy Low With Insiders: Three Struggling Companies Registering Heavy Insider Buying

The major U.S. stock indexes registered the largest one-day losses on Thursday in the past month or so, thanks to the falling energy equities yet again as the broader stock market sentiment reversed quite surprisingly after the Labor Department released the stronger-than-expected jobs report last Friday, which increased the odds of the Federal Reserve raising rates this year. Meanwhile, some companies’ insiders have been ignoring the crowd and started piling up more shares of their companies, which suggests their conviction in the strong future performance of their companies. When insiders buy shares amid high uncertainty and turmoil, their moves are worth even more attention. The Insider Monkey team pinpointed three companies that have registered heavy insider buying activity so far this week, so let’s attempt to find out what might have guided insiders to buy stock.

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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. We have been forward testing the performance of these stock picks since the end of August 2012 and they have returned 102% over the ensuing 37 months, outperforming the S&P 500 Index by more than 53 percentage points (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.

Shoe manufacturer Crocs Inc. (NASDAQ:CROX) has seen two insiders purchase shares so far this trading week. Chief Executive Officer Gregg Ribatt acquired a 15,000-share block on Tuesday at a weighted average price of $9.98, boosting his overall holdings to 716,087 shares. Director Thomas J. Smach also snapped up 15,000 shares on the same day at prices ranging from $9.91-to-$10.10 per share. Following the recent purchase, the Director currently holds a stake of 124,215 shares. The shares of the footwear company are down 25% this year, after the company slashed its third-quarter guidance at the end of September and posted a weaker-than-expected earnings report earlier this month. Several financial services hubs recently cut the price targets on Crocs Inc. (NASDAQ:CROX) and/or downgraded the stock. Earlier this month, equity research firm Monness Crespi Hardt slashed its price target on the Crocs’ stock to $13 from $17, reiterating its ‘Buy’ rating. The shoe manufacturer received some attention from the hedge funds monitored by Insider Monkey during the second quarter, as the number of money managers invested in the company increased to 23 from 17 quarter-on-quarter. Orlando Muyshondt’s Tyrian Investments held an 1.66-share position in Crocs Inc. (NASDAQ:CROX) at the end of the second quarter.

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The second page of this daily insider trading article discloses the insider buying activity at HCP Inc. (NYSE:HCP) and Blucora Inc. (NASDAQ:BCOR).

Let’s now turn our focus on the insider buying activity at hybrid real estate investment trust HCP Inc. (NYSE:HCP). Director James P. Hoffmann grabbed 10,000 shares on Wednesday at an exact price of $33 per share and currently holds a stake of 38,878 shares. Moreover, James Justin Hutchens, Executive Vice President and Chief Investment Officer – Senior Housing and Care, acquired 3,000 shares on the same day at prices in the range of $33.08-to-$33.09 per share and upped his holdings to 15,915 shares. Executive Vice President – Senior Housing Kendall K. Young added 2,900 shares to his holdings last Friday at a weighted average price of $33.95 and currently owns 34,449 shares. The stock has lost nearly 25% since the beginning of the year and is currently trading at levels it has not traded since 2011. Just recently, investment bank Jefferies cut its price target on the REIT that serves the healthcare industry to $39 from $40 and reiterated its ‘Hold’ rating, citing grim outlook on senior housing due to worries about oversupply. Meanwhile, 19 hedge funds monitored by our team owned the stock at the end of the June quarter. Jeffrey Furber’s AEW Capital Management reduced its stake in HCP Inc. (NYSE:HCP) by 1.14 million during the third quarter, remaining with 3.02 million shares.

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Last but not least, we will look into the insider buying activity at Blucora Inc. (NASDAQ:BCOR), which has seen seven insiders purchase stock this week. So let’s take a look at the most noteworthy purchases. To start with, President and Chief Executive Officer William J. Ruckelshaus bought 7,230 shares on Wednesday at a price of $10.36 per share, lifting his stake to 205,009 shares. Director Lance G. Dunn added 10,000 shares to his stake on Tuesday that now consists of 38,699 shares. The 10,000-share block was purchased at $10.08 apiece. Christopher W. Walters, another Member of Blucora’s Board of Directors, acquired 10,400 shares on the same day for $10.25 each and currently owns 28,092 shares. Chief Legal and Administrative Officer Mark Finkelstein bought 2,500 units of common stock on Monday at a price per share of $10.17, enlarging his position to 20,391 shares. Lastly, Director David H. S. Chung purchased 10,000 shares on Monday at a weighted average cost of $10.14. After the recent transaction, the Director owns 39,192 shares. The provider of Internet-related services has seen its shares drop 26% since the beginning of the year. At the same time, 21 hedge funds and other investors within our database had the stock in their portfolios at the end of the second quarter, amassing 10.70% of the company’s shares. Jim Simons’ Renaissance Technologies had 551,400 shares of Blucora Inc. (NASDAQ:BCOR) in its portfolio on June 30.

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