All major U.S. stock indexes closed in the red on Tuesday, with the seven-session recovery rally of the Dow Jones Industrial Average hitting a wall. However, the Standard and Poor’s 500 Index still closed above the psychological 2,000 level, after losing 0.68%. Earnings reports have been trickling out, but the market will see more of them in the upcoming days. In fact, the pending third quarter earnings rush will most likely show us the ultimate direction of the market for the rest of the year, as the growing worries about China’s economic slowdown are easing. Even so, it should be expected that China’s third quarter growth figures, which will be released next week, will shed some light on the ongoing economic recovery process in the Asian country and in turn affect the global markets. Leaving the macroeconomic issues aside, the Insider Monkey team identified three companies that registered a high volume of insider buying activity recently, which could point to strong future prospects at these companies. Urban Edge Properties (NYSE:UE), Adams Diversified Equity Fund Inc. (NYSE:ADX), and Park Electrochemical Corp. (NYSE:PKE) are the three companies in question; therefore, we will dicuss particular developments at these companies that could have guided insiders to buy stock.
Most investors can’t outperform the stock market by individually picking stocks because stock returns aren’t evenly distributed. A randomly picked stock has only a 35%-to-45% chance (depending on the investment horizon) to outperform the market. There are a few exceptions, one of which is when it comes to purchases made by corporate insiders. 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 the 15 most popular small-cap stocks among hedge funds outperformed the market by nearly a percentage point per month between 1999 and 2012. We have been forward testing the performance of these stock picks since the end of August 2012 and they have returned more than 102% over the ensuing three years, outperforming the S&P 500 Index by 53 percentage points (read the details here). The trick is focusing only on the best small-cap stock picks of funds, not their large-cap stock picks which are extensively covered by analysts and followed by almost everybody.
To start with, we will examine the insider trading activity at Urban Edge Properties (NYSE:UE), a real estate investment trust (REIT) that owns and operates retail properties in high barrier-to-entry markets. Chief Operating Officer Robert Minutoli acquired 5,000 shares last Thursday at a weighted average price of $22.73, boosting his stake to 19,172 shares. The stock is slightly over 5% in the red year-to-date, partly owning to the recent broader market sell-off. Urban Edge Properties, which owns and operates a real estate portfolio comprised of 79 shopping centers, three malls, and a warehouse park, has been very successful in increasing the occupancy rate of its retail portfolio. The same-property retail portfolio occupancy rate increased by 130 basis points year-over-year to 96.6% in the second quarter. The company is set to post its third quarter earnings report on November 4 after the market close, which will reveal whether the REIT was able to make the most of its retail portfolio during the quarter. D.E. Shaw & Co. L.P., founded by David E. Shaw, owns approximately 392,000 shares of Urban Edge Properties (NYSE:UE) as of June 30.