Most insider trading experts believe there is only one straightforward reason for corporate insiders to purchase shares of their own companies, which is that they anticipate appreciation of those shares in the future. If corporate insiders were allowed to trade shares whenever they wanted without being under the scrutiny of the U.S. Securities and Exchange Commission, they would definitely be the most successful traders out there in the market. Directors and executives possess up-do-date insights about their companies’ current and future developments, which usually explains why insiders’ purchases tend to outperform market gauges. Although they are restricted from trading on material non-public information, these highly-informed individuals do have a better understanding of their companies’ business models, fundamentals, and industry trends, among other things. This knowledge serves as a competitive edge over other players in the stock market such as analysts, top-tier investors, and others. For that reason, retail investors need to monitor insider activity as part of a broader analysis process, a practice that can pay off handsomely over time. The Insider Monkey team analyzed dozens of Form 4 filings submitted on Tuesday and identified three companies with the most noteworthy insider buying activity.
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).
Greif Inc. (NYSE:GEF) had some of its most influential insiders purchase shares this week. To start with, Lawrence A. Hilsheimer, Chief Financial Officer and Executive Vice President, purchased 36,560 Class A shares on Tuesday at a cost of $27.28 per share, lifting his stake to 55,272 units of Class A common stock. The CFO also owns 20,261 Class B shares. Furthermore, President and Chief Executive Officer Peter G. Watson bought 3,664 Class A shares a day earlier at $27.14 apiece, which enlarged his overall holding to 24,641 shares.
Greif Inc. (NYSE:GEF) produces rigid industrial packaging products such as steel, fibre and plastic drums; rigid intermediate bulk containers; closure systems for industrial packaging products; water bottles, and remanufactured industrial containers. The shares of the company have plummeted by 30% over the past 12 months, after having dropped by 11% in 2016 alone. Greif generated total net sales of $771.4 million in the first quarter of fiscal year 2016 that ended January 31, down from $902.3 million reported for the same period of the prior year. The 14.5% decrease in the company’s top-line results was mainly driven by foreign exchange headwinds which impacted net sales by 8.8%, divestitures completed during 2015, as well as by lower selling prices. The management of the industrial packaging products and services company anticipates that the slowing global industrial economy, lower containerboard prices and possible strengthening of the green buck against other currencies will mostly likely continue to put pressure on the company’s financial performance throughout 2016. Shares of Greif are currently trading at 11.1-times expected earnings, slightly above the forward P/E multiple of 10.6 for competitor International Paper Co (NYSE:IP). There were 18 hedge funds in our system with stakes in Greif at the end of December 2015, with them having accumulated 8.40% of its outstanding common stock. Royce & Associates, founded by Chuck Royce, owns nearly 967,000 shares of Greif Inc. (NYSE:GEF) as of December 31.