All major U.S. stock indexes gained more than 1% on Monday, on the back of diminishing worries about the health of the U.S. economy and recovering crude oil prices. The Dow Jones Industrial Average gained 228.67 points or 1.4% in the first trading session of this week, closing at 16,620.66. In fact, 29 of the 30 Dow components closed in the green on Monday, pushing the gauge into positive territory for February. Insider buying activity has been escalating in recent weeks, which coupled with optimistic U.S. economic data might represent a really positive sign for investors. Investors are becoming less concerned about mounting tales about a potential slowdown of the U.S. economy, which has woken up a strong appetite for U.S. equities once again. The Insider Monkey team looked through dozens of Form 4 filings submitted with the SEC on Monday and identified three companies with noteworthy insider buying, so this article will solely discuss the insider trading behavior and performance of those three companies.
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 start with, Bank of America Corp (NYSE:BAC) has seen two insiders purchase shares over the past week or so. Thong M. Nguyen, President of Retail Banking and Co-head of Consumer Banking, purchased 30,000 shares on Monday at a cost of $12.43 per share and lifted his overall holding to 40,035 shares. Director Frank P. Bramble Sr. bought a new stake of 75,000 shares last Tuesday at $12.32 apiece. The Director also holds an indirect ownership stake of 111,680 shares, which is owned by a revocable trust. Bank stocks have had a tough start to 2016, as investors have been jettisoning these stocks on worries about slowing economic growth, plummeting energy prices and a potential halt in the Fed’s tightening monetary policy. The broader market selloff has hit big banks, including Bank of America Corp (NYSE:BAC), particularly hard thus far in 2016; BAC shares are down 25% since the beginning of the year. Bank of America currently has a market value that is significantly below its book value, which is a strong reason for buying the stock at the moment. In fact, Bank of America is the cheapest big bank in the industry at the moment, save for Citigroup Inc. (NYSE:C). Furthermore, the stock trades at a forward P/E multiple of only 7.49, which is significantly below the average of 11.6 for the Financial sector. At the end of January, Sandler O’Neil upgraded Bank of America’s stock to ‘Buy’ from ‘Hold’. The hedge fund sentiment towards the stock was positive in the fourth quarter of 2015, as the number of money managers tracked by Insider Monkey bullish on the bank increased to 112 from 108 quarter-on-quarter. Boykin Curry’s Eagle Capital Management upped its position in Bank of America Corp (NYSE:BAC) by 4% during the December quarter to 31.64 million shares.
Overstock.com Inc. (NASDAQ:OSTK) is another struggling company that had one member of its Board of Directors purchase shares last week. Joseph J. Tabacco Jr., who has been a director since June 2007, snapped up 15,000 shares on Thursday for $14.45 each and currently holds a stake of 56,683 shares. The online retailer has seen its shares plummet 36% over the past 12 months, despite surging by 16% since the beginning of 2016. The company experienced slowing revenue growth in the second half of 2015, presumably because of changes in natural search engine algorithms implemented by Google. This led to increased marketing expenses, as the company sought to reach customers through other marketing channels, including sponsored search and display ad marketing. Nonetheless, Overstock.com’s revenue for 2015 totaled $1.66 billion, up from $1.50 billion reported for 2014. Non-GAAP contribution increased 8% year-over-year to $186.1 million. It is important to note that the company’s Club O loyalty program has been playing a more prominent role in revenue growth, while the company’s management made some changes to its program by adding a two-tiered structure. In January 2014, the company started accepting bitcoins as payment on its website, as well as hold bitcoin and other cryptocurrencies directly, which might be bear some risks given the negative sentiment around the bitcoin and exchange rate risks associated with this decision. Fairfax Financial Holdings, founded by Prem Watsa, owns 3.18 million shares of Overstock.com Inc. (NASDAQ:OSTK) as of December 31.
Let’s wrap up our discussion by analyzing the insider buying activity at Covanta Holding Corp (NYSE:CVA). President and Chief Executive Officer Stephen J. Jones acquired 15,000 shares on Friday at prices that ranged from $13.00 to $13.24 per share and increased his overall holding to 55,444 shares. The CEO also owns an indirect stake of 90,000 shares, which is held by his spouse’s trust. Covanta Holdings is one of the world’s largest owners and operators of infrastructure for the transformation of waste to energy, known as energy-from-waste or simply EfW. The company’s EfW facilities derive revenue from the disposal of waste, the generation of electricity and steam, and sale of metal recovered during the EfW process. Covanta Holding generated total revenue of $1.65 billion during 2015, which marked a decrease of $37 million year-on-year. The decrease was mainly attributable to a decrease in energy, recycled metals and construction revenue due to lower energy prices and fall in recycled metal market prices. However, the decrease was somewhat offset by higher new waste and service revenue. The shares of the self-proclaimed leader in sustainable waste and energy solutions are down by 38% over the past year, and have declined by 16% since the beginning of 2016. On Thursday, analysts at Stifel upgraded the stock to ‘Buy’ from ‘Hold’, assigning a price target of $16.50. The number of hedge funds tracked by our team with positions in Covanta dropped to 13 from 19 during the December quarter. Billionaire Jim Simons‘ Renaissance Technologies’ mathematical models suggest that Covanta Holding Corp (NYSE:CVA)’s stock is poised for a rebound in 2016, as the fund lifted its stake in the company by 25% during the fourth quarter to 3.36 million shares.