All major U.S. indexes closed in the red on Thursday, as market participants digest the Federal Reserve’s decision to raise interest rates. Investors positively greeted this historical decision on Wednesday, as it was followed by a rally in equites on that day. Meanwhile, the depressed crude oil prices and the massive sell-off in junk bonds have put some weight on U.S. equities lately. Insider trading watchers might have easily noticed that the energy industry has been registering higher-than-usual insider buying, which could somewhat suggest that energy-related equities are in a bottoming-out phase at the moment. Numerous investors and analysts have different opinions on future crude oil prices and on companies’ ability to endure the current low commodity price environment, but corporate insiders are the ones who have a better understanding of their companies’ prospects, liquidity problems and other short- and long-term developments. This applies to all industries and companies one can think of, and that’s one of the key reasons Insider Monkey closely monitors insider trading activity. With that in mind, this article will discuss noteworthy insider buys reported at three US-listed companies, including one energy company, and the recent performance of those companies.
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 38 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.
New Mountain Finance Corp. (NYSE:NMFC) has registered an unusual volume of insider buying this week, as six different insiders bought shares on Monday through Thursday. Nonetheless, we will reveal the most noteworthy insider buys only. To start with, Chairman Steven B. Klinsky purchased 222,313 shares this week at a weighted average price of $13.03, boosting his holding to nearly 3.84 million shares. Director David R. Malpass snapped up a block of 30,000 shares at prices that ranged from $12.17 to $12.93 and currently holds 161,411 shares. Last but not least, President and Chief Executive Officer Robert A. Hamwee bought 25,000 shares on the same day at a weighted average price of $12.35, lifting his stake to 212,459 shares. The business development company mainly invests in debt securities at all levels of the capital structure, which include first and second lien debt, notes, bonds and mezzanine securities. Shares of New Mountain Finance Corp. (NYSE:NMFC) plummeted in early-December, presumably because of the sharp sell-off in junk bonds. First and second lien debt is mainly rated below investment grade, and these debt investments are widely-known as junk debt investments. The stock is down by 12% for the year and trades at a rather cheap forward price-to-earnings ratio of 9.19, which is below the average of 17.35 for the S&P 500 Index. Robert B. Gillam’s McKinkey Capital Management owns 113,193 shares in New Mountain Finance Corp. (NYSE:NMFC) as of September 30.