Retail investors usually do not have the luxury of discussing with the management of a company they intend to invest in, but they can keep track of what corporate insiders are doing instead. Corporate insiders, particularly top-tier executives, usually have a better understanding of their companies’ businesses, current developments, and future prospects than any industry analyst or hedge fund manager out there. By tracking insider trading activity, investors can get an idea of where a company is heading. However, there is a set of basic rules retail investors should bear in mind when tracking insider trading behavior. First, insider purchases tend to be more informative than insider sales. Corporate insiders usually sell shares for a wide array of reasons, some of which are not related to their companies’ prospects and current developments at all. On the other hand, insiders invest in stock markets to make money, so their purchases usually suggest that their companies’ stock is undervalued. Second, clusters of both insider selling and insider buying tend to be more informative and predictive of future stock returns than individual trades. Nonetheless, each individual insider purchase may send a bullish signal to the investment community, depending on the size of the purchase and the role of the insider. With this in mind, let’s proceed with the discussion of several sizable insider purchases registered at three separate companies earlier this week.
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 imitating 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).
To begin with, Heat Biologics Inc. (NASDAQ:HTBX) had one member of its Board of Directors purchase an extremely sizable block of shares this week. Director Michael Kharitonov reported purchasing 900,000 shares on Wednesday at a price of $0.75 per share, boosting his direct ownership stake to 949,960 shares. Mr. Kharitonov purchased this sizable block of shares, as well as warrants to purchase up to 675,000 shares, though a public offering conducted by the immuno-oncology company. Those warrants expire in approximately five years and have an exercise price of $1.00 per share. Heat Biologics Inc. (NASDAQ:HTBX) sold 9.10 million shares of common stock and warrants to purchase up to 6.83 million shares through the public offering and generated gross proceeds amounting to $6.8 million. The net proceeds are said to be used for the completion of the company’s Phase 2 clinical trial evaluating HS-410 for the treatment of non-muscle invasive bladder cancer (NMIBC).
The company focuses on developing novel therapies aimed at activating patients’ immune systems to fight cancer. To be more detailed, Heat Biologics uses its T cell-stimulating platform technologies, ImPACT and ComPact, to create and design product candidates that may be effective in treating certain forms of cancer. At this point in time, the company’s primary focus relies on the aforementioned Phase 2 trial evaluating HS-410 for the treatment of high-risk NMIBC. The company has already completed the enrollment for the trial and anticipates to report top-line efficacy, immune-response and safety data in the fourth quarter of this year. Shares of Heat Biologics are down by 88% in the past 12 months, after having dropped 71% since the beginning of 2016. Retail investors should include this stock in their watchlists, as potential positive data from the aforementioned trial might serve as a strong catalyst for the stock. Hal Mintz’s Sabby Management LLC owns 21,971 shares of Heat Biologics Inc. (NASDAQ:HTBX) as of December 31.