A vast number of studies completed by reputable researchers and professors from top-tier universities have arrived at the conclusion that corporate insiders tend to earn abnormal returns when buying shares of their companies. Similarly, another group of research papers concluded that non-insiders can also achieve strong returns by solely mimicking insiders, suggesting that investors could achieve better returns by incorporating insider trading activity into their stock selection and analysis process.
While some studies may be viewed as outdated and irrelevant, the reasoning behind tracking insider trading activity remains as strong and durable today as ever. As well-known investment guru Peter Lynch once said: “Insiders might sell their shares for any number of reasons, but they buy them for only one: they think the price will rise.” Indeed, this line of thought still applies today, since it’s hard to believe that insiders are investing their hard-earned money in their own company’s shares for reasons other than that they anticipate capital gains. For that reason, this article predominantly discusses fresh insider buying recently observed at several companies, as well as covering some noteworthy insider sales transactions reported with the SEC on Tuesday.
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Long-Serving Board Member at Energy-Services Holding Company Initiates Stake
Let’s kick off our discussion by looking into the insider buying activity observed at Sempra Energy (NYSE:SRE). Alan L. Boeckmann, elected to the company’s Board of Directors in late-February 2011, initiated a stake of 6,000 shares on Tuesday at prices ranging from $101.73 to $101.92 per share. Clearly, the size of the purchase is not overly significant, but the timing of the purchase may be very informative. After all, the Board member could have initiated a stake at any time since early-2011, but did so only this week.
Just recently, the energy-services holding company that develops and operates energy infrastructure, and provides gas and electricity services to its customers in North and South America said it ended talks to buy control of Brazilian engineering company Odebrecht’s pipeline project in Peru. Sempra Energy (NYSE:SRE) said the Peruvian government could not offer guarantees that it would not cancel the pipeline contract if Odebrecht, a family-owned engineering conglomerate that controls 55% of the project, was found to have broken the law. Odebrecht has been in the center of the biggest graft scandals in Brazil, with the Peruvian prosecutors investigating possible wrongdoing in the awarding of the pipeline contract that Odebrecht won in a public auction in 2014. The shares of Sempra Energy are up by 7% thus far in 2016 despite having lost 5% in the past six months. Adage Capital Management, founded by Phillip Gross and Robert Atchinson, was the owner of 1.73 million shares of Sempra Energy (NYSE:SRE) at the end of the third quarter.
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The next two pages of this daily insider trading article will discuss the fresh insider buying and selling activity observed at several other companies.