I am a great believer in corporate insiders’ ability to outperform broader market benchmarks and I am not the only one in this camp. Insider trading watchers know that insiders tend to act as contrarian investors, which means that they will buy low and sell high, the core tenets of successful investing, yet ones often not properly utilized by the average investor, who tends to go along with the market rather than against it. Of course, the timing of insider sales or purchases does not always precisely pinpoint the turnaround point of a company’s stock performance, but strong shifts in insider trading behavior might represent strong indicators of future stock performance. Past research also suggests that non-insiders can capitalize on insiders’ highly-successful ability to trade shares, so it does pay off to keep a close eye on insider trading. Nonetheless, insider trading fans should still remember that corporate insiders do have their own biases, so they are also prone to making mistakes when trading. For that reason, retail investors should mostly look for clusters of insider buying. The Insider Monkey team has revealed and discussed numerous such clusters of insider buying at various companies over the past several months, with our almost-daily insider trading articles frequently revealing possible investment opportunities. We have processed a bunch of Form 4 filings submitted with the SEC on Monday and identified three more companies that have witnessed interesting insider trading activity on the buy side.
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).
Let’s begin our so-called legal insider trading investigation by analyzing the insider buying registered at Newell Rubbermaid Inc. (NYSE:NWL). Executive Vice President Mark S. Tarchetti purchased 12,380 shares on Friday through multiple transactions at prices that ranged from $40.75 to $40.78 per share, which lifted his overall holding to 176,559 shares. Newell Rubbermaid is a distributor of consumer and commercial products marketed under a wide portfolio of brands such as Sharpie, Paper Mate, Expo, and Mr. Sketch, to name just a few. In December 2015, Newell Rubbermaid Inc. (NYSE:NWL) announced that it had agreed to acquire Jarden Corp (NYSE:JAH), a global consumer products company that markets a wide portfolio of consumer products in three business lines: Branded Consumables, Consumer Solutions, and Outdoor Solutions. Under the terms of the freshly-inked merger deal, Jarden shareholders will receive 0.862 shares of Newell and $21.00 in cash for each share of Jarden. The management of Newell Rubbermaid anticipates that the soon-to-be combined company will be able to achieve cost synergies of $500 million over the next four years. However, some analysts believe that the multi-billion-dollar merger may destroy some shareholder value, considering the low profitability of the two companies relative to other peers in the industry. Even so, the management of Newell Rubbermaid expects the deal to accelerate growth and expand margins, thus submerging analysts’ concerns over the success of the deal and its benefits.
One could interpret the recent insider buying at Newell Rubbermaid as a sign of management’s confidence in the future of the post-merger company. The aforementioned stock-and-cash merger is anticipated to close in the second quarter of 2016. Shares of Newell Rubbermaid are 6% in the red year-to-date and trade at 16.7-times expected earnings, compared to the forward P/E multiple of 16.6 for competitor Avery Dennison Corp (NYSE:AVY) and the ratio of 12.55 for Tupperware Brands Corporation (NYSE:TUP). There were 28 hedge funds in our system with stakes in the company at the end of December 2015, which had accumulated nearly 8% of its outstanding common stock. Lee Ainslie’s Maverick Capital acquired a new stake of 4.17 million shares in Newell Rubbermaid Inc. (NYSE:NWL) during the December quarter.
The insider trading activity at Paramount Group Inc. (NYSE:PGRE) had been absent for quite some time, until last week. Director David P. O’Connor snapped up 32,000 shares on Thursday at a cost of $15.23 per share, lifting his overall stake to 46,285 shares. Retail investors could follow suit considering the company’s disappointing stock performance in 2016.
Shares of Paramount Group are down by 13% year-to-date despite having gained 6% over the past month. Paramount Group operates as a fully-integrated real estate investment trust (REIT) that primarily focuses on owning and operating Class A office properties in select central business district submarkets of New York City, Washington, D.C. and San Francisco. The REIT’s portfolio includes 12 Class A office properties aggregating 10.4 million square feet, of which 95.3% are leased and 90.3% occupied as of the end of December 2015. In December 2015, the company announced a quarterly cash dividend of $0.095 per share for the fourth quarter, which denotes a current dividend yield of 2.43%. Paramount Group generated revenue of $662.41 million during 2015 and funds from operations amounting to $209.35 million. The REIT completed its initial public offering in November 2014 by offering 150.65 million shares to the public at an IPO price of $17.50 per share. The number of hedge funds that we track which had stakes in Paramount Group Inc. (NYSE:PGRE) dropped to 12 from 15 during the December quarter. John Khoury’s Long Pond Capital trimmed its stake in the company by 27% during the fourth quarter, ending the year with 9.59 million shares.
Let’s conclude our discussion by looking into the cluster of insider buying witnessed at Cross Country Healthcare Inc. (NASDAQ:CCRN). To start with, Director Thomas C. Dircks purchased 12,000 shares yesterday at prices ranging from $11.03 to $11.06, enlarging his direct ownership stake to 78,001 shares. Chief Financial Officer William J. Burns bought 2,600 units of common stock on the same day at a cost of $11.05 apiece, which raised his overall holding to 79,432 shares. Last but not least, President and Chief Executive Officer William J. Grubbs added 10,000 shares to his equity portfolio on Monday, which currently comprises 238,395 shares. The 10,000-share block was purchased for $11.46 per share. This is the type of insider trading behavior that insider trading experts, including ourselves, usually recommend that retail investors seek out.
Cross Country Healthcare, a provider of healthcare staffing, recruiting and workforce solutions, has seen its shares decline by 32% since the beginning of 2016, partially owing to a rather disappointing fourth-quarter earnings report. The company had at least 9,500 active contracts with various clients in both clinical and non-clinical settings at the end of 2015, some of which were represented by acute hospitals, physician practice groups, and nursing facilities, to name just a few. In October 2015, Cross Country Healthcare acquired Mediscan Inc., a provider of temporary healthcare staffing and workforce solutions to the healthcare and education markets, for $29.9 million in cash and $4.7 million in shares. The acquisition is set to set to strengthen the acquirer’s footprint in California by allowing it to add new service lines, expand its market share and diversify its customer base. Cross Country Healthcare’s revenue from services totaled $767.42 million in 2015, which was an increase from $617.83 million in 2014 and $438.31 million in 2013. The hedge fund sentiment towards the company decreased in the fourth quarter of 2015, as the number of funds with positions in Cross Country Healthcare fell to 15 from 20 quarter-over-quarter. Israel Englander’s Millennium Management reported owning nearly 722,000 shares of Cross Country Healthcare Inc. (NASDAQ:CCRN) in its latest 13F filing.