Most U.S.-listed companies have already disclosed their third quarter earnings reports, while the window for insiders to buy and sell stock has been gradually opening as well. This can easily be noticed in the daily and weekly volume of insider trading activity. It is widely known that insiders may sell stock for various reasons, but they buy stock for one simple reason: they believe their companies’ shares will appreciate in the months and years ahead. Of course, insiders’ decisions and judgement might not be in line with the broader market on all occasions, but extensive research has provided evidence that they usually tend to beat the broader market with their purchases. With that in mind, the following article will discuss the recent insider buying activity at three companies pinpointed by the Insider Monkey team.
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 37 months, outperforming the S&P 500 Index by more than 53 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 our discussion with DigitalGlobe Inc. (NYSE:DGI), which has seen eight different insiders acquire stock so far this week, though we’ll only analyze the most noteworthy insider trades. To begin with, President and Chief Executive Officer Jeffrey R. Tarr purchased 3,000 shares on Tuesday at a price of $15.80 per share and currently holds 224,219 shares. Executive Vice President and Chief Financial Officer Gary W. Ferrera acquired a 4,000-share block at prices between $15.98-and-$16.50 per share, enlarging his holding to 44,722 shares. Furthermore, Director Warren C. Jenson added 10,000 shares, which were acquired at prices ranging from $16.36-to-$16.39, to his holding that now comprises 33,874 shares. Stephanie Comfort, Senior Vice President, Corporate Strategy, Communications and Marketing, also bought 3,060 shares on Tuesday at a weighted average price of $16.36 and currently owns a 26,757-share stake. These bullish moves come after DigitalGlobe Inc. (NYSE:DGI)’s shares tanked following the company’s release of its third quarter results and its lowered full-year guidance for 2015. The stock is 46% in the red year-to-date, so it appears that insiders are attempting to reassure the market that the company has a great future ahead. Mariko Gordon’s Daruma Asset Management owned a 2.91 million-share stake in DigitalGlobe Inc. (NYSE:DGI) at the end of the second quarter.
The heavy insider buying activity at Healthways and Bank of Commerce Holdings is dicussed on the next page.