What have corporate insiders been doing during the broader market sell-off experienced in early 2016? Buying, buying, buying, much as they did in the aftermath of the financial crisis of 2008. Insiders were accumulating shares in their own companies at an extremely high rate, and most purchases paid off quite handsomely for insiders. But insider buying activity has stalled lately as U.S stock markets are trading near their all-time highs.
Board members and top-tier executives usually act as value investors when they buy shares of their own companies on the open market, believing that their companies’ shares are greatly underestimating the earnings potential of their businesses. Corporate insiders usually follow billionaire Warren Buffett’s admonition to be greedy when others are fearful, and that’s why insiders have a tendency to beat broader market benchmarks. With this in mind, let’s proceed to a discussion of the fresh insider trading activity registered at five 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 Industrial-Product Maker’s CEO Piles Up Shares Amid Stock Price Weakness
Actuant Corporation (NYSE:ATU) is one of the few companies that registered insider buying earlier this week. President and CEO Randal W. Baker purchased 10,795 Class A shares on Monday at prices ranging from $23.12 to $23.15 per share. Mr. Baker was also granted 5,397 restricted stock units under the Actuant Corporation 2009 Omnibus Incentive Plan on the same day. After the recent transactions, the CEO currently owns 69,376 Class A shares.
The insider buying comes shortly after the industrial-product maker released better than expected third quarter of fiscal year 2016 results, though it provided weaker than anticipated guidance for the fiscal fourth quarter. Actuant Corporation (NYSE:ATU) has seen the value of its stock decline by 9% in the past month and by a little less than 2% since the start of the year. Just recently, analysts at BMO Capital Markets lowered their price target on the Wisconsin-based industrial company to $22 from $23, saying that end-market trends, mix and pricing continue to be difficult. Mason Hawkins’ Southeastern Asset Management was the owner of 6.41 million shares of Actuant Corporation (NYSE:ATU) at the end of March.
The next two pages of this article will discuss the insider buying registered at two companies, as well as the fresh insider selling observed at two other companies.