Tracking insider trading activity might serve as an additional tool of analysis for both short- and long-term investors. Generally, company insiders have deeper and more up-to-date knowledge on their company’s sales, earnings, and future outlook, among other things. It is common knowledge that no one invests to lose money, and corporate insiders are no exception. As one of the greatest investors of all time, Peter Lynch, said: “Insiders might sell their shares for any number of reasons, but they buy them for only one: they think the price will rise”. Therefore, insider buying might indicate that a stock will be appreciating in the near future. In the following article we will be discussing three companies that had a large volume of insider purchases on Wednesday, those companies being STAG Industrial Inc. (NYSE:STAG), PolyOne Corporation (NYSE:POL), and Computer Task Group Inc. (NASDAQ:CTG).
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 more than 123% over the ensuing 34 months, outperforming the S&P 500 Index by nearly 67 percentage points (read the 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.
Let’s begin by taking a look at the insider buying activity at STAG Industrial Inc. (NYSE:STAG). Three purchases have been made by three different corporate insiders since the beginning of the current week. Francis X. Jacoby, an Independent Director at STAG Industrial, acquired 2,600 shares at a price of $18.97 each on July 28. In the meantime, Geoffrey G. Jervis, who currently acts as Chief Financial Officer, Executive Vice President and Treasurer at the company, purchased 5,000 shares for $18.60 each. Lastly, Jeffrey M. Sullivan, who serves as an Executive Vice President, General Counsel and Secretary at STAG, acquired 5,300 shares at $18.83 per share. It’s not hard to see why corporate insiders have been stacking shares of this company lately, as the shares of the real estate investment trust have dropped by over 20% year-to-date. Moreover, the second quarter was marked by continued progress on all operational fronts for the company, though it seems that the market failed to appreciate this progress. STAG Industrial posted revenue of $52.8 million, up by 27% year-over-yearm, while the net loss for the second quarter of this year came in at $5.2 million, partly caused by a loss on impairment of $2.6 million, compared to a net loss of $2.7 million reported in the same quarter a year ago. Within our database, Alan Reid’s Forward Management is the largest investor in STAG Industrial Inc. (NYSE:STAG), with 1.84 million shares.
Another stock that has been marked by large insider buying activity is PolyOne Corporation (NYSE:POL). Robert M. Patterson, who acts as the President and Chief Executive Officer at PolyOne Corporation, acquired 3,000 shares of the company at $33.45 per share. In the meantime, John Midea, who is the Senior Vice President, purchased 450 shares for $33.41 each. The shares of PolyOne Corporation have decreased by nearly 10% year-to-date, partly owning to a serious slump after the company announced its financial results for the second quarter of 2015. Even though PolyOne delivered adjusted earnings per share (EPS) that increased to an all-time quarterly high of $0.57, the market reacted very negatively to the company’s earnings announcement. Analysts anticipated adjusted earnings per share of $0.58 for the quarter, which might explain the significant drop in the company’s share price following the announcement. PolyOne posted revenue of $887 million for the second quarter, compared to $1.0 billion reported in the same quarter a year ago. It seems that the market overreacted to the company’s financial results announcement, so corporate insiders see the potential for profits from their investments. From the pool of over 700 hedge funds we observe, Israel Englander‘s Millennium Management is among the largest investors in PolyOne Corporation (NYSE:POL), owning 506,984 shares.
Lastly, another stock that corporate insiders have been loading up on is Computer Task Group Inc. (NASDAQ:CTG). Cliff Bleustein, CTG’s new President and Chief Executive Officer, purchased 26,645 shares for $7.03 each on July 29. The shares of Computer Task Group have dropped by 26% since the beginning of the current year, which might represent a great buying opportunity for bottom-fishing investors. The company recently announced its financial results for the fiscal second quarter of 2015 that ended on July 3, posting revenues of $94.74 million, down from $100.33 million reported in the same quarter a year ago. The company’s top-line figure has mainly been affected by unfavorable foreign currency exchange. CTG has also revised its guidance for the full year and tightened the projected annual revenue range from its previous guidance. However, the company expects higher annual diluted net income per share, reflecting the strong second quarter diluted net income per share of $0.03, which reached the top end of its previous estimate. Within our database, Chuck Royce’s Royce & Associates represents the largest investor in Computer Task Group Inc. (NASDAQ:CTG), holding 2.42 million shares.
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