Tracking insider trading activity may not be easy and insider trading metrics are not necessarily a guarantee of strong trading profits. Indeed, if executives and Board members are buying shares of their own companies, investors would do wise to take notice. Much research indicates that insider trading behavior serves as a valuable barometer of changes in sentiment and possibly future stock performance.
However, investors blindly mimicking each insider purchase may not be very successful after all, so one needs to learn how do distinguish information-rich insider buying from useless insider activity. The most important rule of thumb says that clusters of insider buying are indeed indicative of future outperformance. Of course, the number of insiders making open market purchases is highly important. Three or more insiders buying shares offer a better indication that a company’s shares are undervalued. Nonetheless, clusters of insider buying is not a common occurrence, but Insider Monkey does cover massive clusters whenever they emerge. That said, the following article will discuss several noteworthy insider transactions reported with the SEC on Tuesday.
Through extensive research, we have determined that the due diligence that the investors in our database employ, as well as their long-term focus makes them perfect targets to emulate. However, the results of our analysis have also shown that the small-cap picks of these funds can generate much better returns, with the 15 most popular small-cap stocks beating the market by an average of 95 basis points per month (read more details here).
Struggling Bond Insurer See CEO Buy More Shares
Ambac Financial Group Inc. (NASDAQ:AMBC) has seen its most influential executive buy shares consistently over the past several months. CEO Nader Tavakoli snatched up 16,600 shares on Monday for $15.03 each and 3,400 shares on Friday at $15.28 apiece, lifting his overall holding to 254,742 shares.
The U.S. bond insurer and Mr. Tavakoli himself have been under intense pressure earlier this year, with several top shareholders calling on the CEO to step down. Canyon Capital Advisors LLC, a credit-focused hedge fund founded by Joshua Friedman and Mitchell Julis, pressured Ambac Financial Group Inc. (NASDAQ:AMBC) to accelerate the settlement of $2 billion in insurance claims and started a proxy fight against the company, which was eventually ended in mid-May. The credit-focused fund was said to have debt positions in securities issued or insured by Ambac valued at $376 million, with its equity holding in the insurer being worth roughly one-tenth of the $376 million-figure. With activist pressure being over already, Ambac Financial still has to deal with its huge exposures to the Commonwealth of Puerto Rico. The Commonwealth’s poor financial condition, weak economy and limited access to capital markets have weighted on Ambac shares. Some investors recently sued the insurer, saying Ambac misled shareholders about its public finance bond portfolio, including $2.5 billion worth of Puerto Rican debt.
There were 17 hedge fund vehicles followed by Insider Monkey with equity investments in the bond insurer at the end of March, which amassed roughly 22% of the company’s outstanding common stock. Ambac shares are 7% in the green year-to-date. William C. Martin’s Raging Capital Management was the owner of 1.10 million shares of Ambac Financial Group Inc. (NASDAQ:AMBC) on March 31.
Let’s head to the next page of this article, where we will reveal the insider buying registered at two other companies.
Oil-Dependent Regional Bank Registers Insider Buying
Prosperity Bancshares Inc. (NYSE:PB) also registered some notable insider buying earlier this week. H. E. Timanus Jr., Vice Chairman of the company’s boardroom, purchased 6,000 shares on Monday at prices varying from $45.00 to $45.39 per share, lifting his direct ownership stake to 120,273 shares. Mr. Timanus also reported the purchase of 500 shares for $45.43 each, which are held by Dooley Investments LTD that currently owns 256,260 shares. The Vice Chairman and his spouse are general partners of Dooley Investments.
The shares of the regional bank holding company for Prosperity Bank, which operates 246 full-service banking locations across the states of Texas and Oklahoma, are down nearly 3% since the beginning of 2016. The local economy in the two states, Prosperity Bancshares Inc. (NYSE:PB)’s only market areas, is highly dependent on a high number of oil companies, which means their struggles amid a possible decline in crude oil prices could hit economic conditions in these areas. Moreover, the bank’s oil and gas loans totaled $362.8 million at the end of March, accounting for 3.8% of total loans. $166.4 million of those loans were issued to production companies, with the remainder being channeled to service companies.
The bank’s shares are currently trading around 11.3-times expected earnings, below the forward P/E ratio of 11.5 for the regional banks industry. A number of 11 asset managers tracked by our team were invested in the company at the end of March, accumulating roughly 3% of its outstanding shares. Ken Griffin’s Citadel Advisors LLC owned almost 426,000 shares of Prosperity Bancshares Inc. (NYSE:PB) on March 31.
Pharmaceutical Company Registers Cluster of Insider Buying
SCYNEXIS Inc. (NASDAQ:SCYX) had four different insider buy shares last week, which is the kind of insider buying activity investors should look for. To begin with, Board member Clarence Patrick Machado acquired a new stake of 20,000 shares on Friday at $2.39 apiece. Eric Francois, Chief Financial Officer since November 2015, snapped up a 15,000-share stake on the same day for $2.39 each. More importantly, CEO Marco Taglietti bought 100,000 shares at a cost of $2.39 per share, which lifted his overall holding to 225,000 shares. Guy Macdonald, Chairman of the company’s Board since June 2015, acquired a new stake of 40,000 units of common stock on Friday at $2.39 per unit.
A little more than a week ago, the pharmaceutical company focused on developing novel anti-infectives issued 9.38 million shares and warrants to purchase 4.22 million shares at a public offering price of $2.40 per share. SCYNEXIS Inc. (NASDAQ:SCYX) plans to use the estimated $20.7 million in net proceeds to cover working capital needs and general corporate expenses, which may include expenses associated with funding research and development, clinical trials, vendor payables, possible regulatory submissions, additional personnel and capital expenditures. The company’s lead product candidate, called SCY-078, is a novel oral and intravenous (IV) drug developed for the treatment of several fungal infections, including life-threatening invasive fungal infections in humans.
There were a total of eight asset managers followed by our team with long positions in the pharmaceutical company at the end of March, who hoarded up nearly 24% of the company’s total number of outstanding shares. SCYNEXIS shares have lost 64% of their value so far in 2016. Kevin Kotler’s Broadfin Capital reported ownership of 753,373 shares of SCYNEXIS Inc. (NASDAQ:SCYX) in its latest 13F.