With most companies and stock market participants getting ready for another harsh earnings season, insider trading activity, particularly on the buy side, has been slowing quite significantly in the past several weeks. Numerous companies have put in place various trading blackout periods, which restrict insiders from buying or selling shares ahead of earnings releases. Last week’s dollar volume of insider buying declined meaningfully relative to the previous week (even though the latter was a holiday-shortened week), whereas the volume of insider selling more than doubled week-over-week. As a result, last week’s ratio of insider selling over insider buying skyrocketed to levels not seen for quite a long period of time. This phenomenon should not surprise anyone, especially considering the grim outlook for the first-quarter earnings season. According to FactSet, the S&P 500 first-quarter earnings are anticipated to decline 8.5% year-on-year, which would mark the fourth straight quarter of year-on-year declines in earnings. It is true that the massive decline in earnings will be driven by the struggling energy sector, but other sectors such as the technology and financials sectors are not expected to deliver great earnings either (tech earnings are anticipated to decline by more than 5% and financials are expected to decline by more than 7%). Leaving this discussion aside, there still was some insider buying activity that could catch investors’ eyes last week. Insider Monkey processed most Form 4 filings submitted with the SEC on Friday and pinpointed three companies with noteworthy insider buying.
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).
Advanced Energy Industries Inc. (NASDAQ:AEIS) was one of the few companies that witnessed some insider buying this past week. Grant H. Beard, a member of the company’s Board of Directors, snapped up 10,000 shares on Wednesday at prices that ranged from $34.87 to $35.47 per share, lifting his ownership to 38,000 shares. Mr. Beard’s ownership stake also includes 18,000 shares received in two grants in the form restricted stock units (RSUs): 10,000 RSUs, which were granted in May 2014, vest annually in four equal installments on each anniversary of the grant date; and 8,000 RSUs, granted in May 2015, vest 100% at the anniversary of the grant date.
Advanced Energy Industries Inc. (NASDAQ:AEIS) is a provider of precision power conversion, measurement and control solutions to various customers. The company’s process power products enable manufacturing processes that use thin films for products such as semiconductor devices, flat panel displays, thin film renewables, industrial coatings and architectural glass, among others. The shares of Advanced Energy Industries have enjoyed a great run since the beginning of 2016, as they climbed 24% year-to-date. Although capital spending in the semiconductor equipment industry was practically flat year-on-year in 2015, the increased usage of mobility, connectivity and the cloud are expected to increase the demand for higher density memory, high speed logic devices and lower power consumption. Furthermore, more capital spending across the semiconductor industry is anticipated to be channeled towards next-generation technologies such as 3D devices and 3D packaging, which will result in higher demand for radio frequency (RF) power supplies and accessories. These trends in the semiconductor equipment industry may continue driving up the company’s growth in the years ahead. Advanced Energy Industries generated sales of $414.81 million in 2015, up from $367.33 million in 2014 and $299.38 million in 2013. The increase in the company’s 2015 top-line results was mainly driven by strong semiconductor sales through the third quarter, as well as the acquisitions of high voltage and power control product lines in 2014. Shares of Advanced Energy Industry are currently trading around 13.8-times expected earnings, slightly below the forward P/E multiple of 13.9 for the Semiconductor Equipment industry. Royce & Associates, founded by Chuck Royce, reported owning 1.44 million shares of Advanced Energy Industries Inc. (NASDAQ:AEIS) as of the end of 2015.