The insider purchases conducted by famous CEOs such as James Dimon of JPMorgan Chase & Co. (NYSE:JPM) usually receive the most publicity, but individual purchases made by top-tier executives may be less informative than clusters of insider buying that involve three or more insiders. That’s right, retail investors seeking to get the most of insider trading metrics should look for clusters of insider buying. While these clusters are no common occurrence, Insider Monkey usually reveals such collections of buying in our almost daily insider trading articles. But why would anyone bother to have a look at insider buying at all? One should keep in mind that most directors and executives receive shares as part of their compensation packages, which makes us believe that insiders buy shares on the open market because they want more undervalued shares poised to appreciate over time. Put it differently, the increased usage of equity-based compensation has somewhat increased the significance of insider buying. With that in mind, the following article will examine several insider purchases recently registered at three companies, as well as some insider selling recorded at two other 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).
This Provider of Property and Casualty Insurance and Reinsurance Had CEO Buy Shares This Week
John Charman, Chief Executive Officer and Chairman of Endurance Specialty Holdings Ltd. (NYSE:ENH)’s Board, purchased 75,000 shares on Tuesday for $67.65 each and 85,000 shares on Wednesday at $68.04 apiece. All these shares are held by Dragon Global Holdings Ltd., which currently owns 1.68 million shares. Mr. Charman also holds a direct ownership stake of 971,255 shares, which was lifted after the CEO exercised 160,000 stock options at an exercise price of $48.20 on Wednesday.
The writer of specialty lines of property and casualty insurance and reinsurance has seen its market capitalization rise 7% thus far in 2016. Endurance Specialty Holdings Ltd. (NYSE:ENH)’s gross premiums written for the first three months of 2016 were $1.61 billion, which marked an increase of 23.8% year-over-year. The shares of the company are currently trading at around 10.5-times expected earnings, below the forward P/E multiple of 13.1 for the property and casualty insurance segment. Ric Dillon’s Diamond Hill Capital upped its stake in Endurance Specialty Holdings Ltd. (NYSE:ENH) by 12% during the January-to-March period to 948,305 shares.
On the next pages of this article we will discuss the recent insider trading activity registered at four other companies.