Insider Buying Metric Points To Strong Future Prospects At These 3 Companies

All major U.S. stock indexes closed in the green on Tuesday, while most investors are awaiting the Federal Reserve’s decision to raise interest rates for the first time since 2006. The Federal funds future contracts reveal an 81% probability of a rate hike by the Fed this week, so it is unlikely that the central bank of the United States will postpone this much-awaited decision once again. Meanwhile, investors believe that equities are poised to advance even though the Fed changes course in its monetary policy, but the returns are anticipated to be slightly lower. Nonetheless, some companies’ insiders have been buying more shares in their companies’ stock, which might signal price appreciation in the forthcoming future. Normally, there appears to be only one reason why a corporate insider would purchase shares: the insider believes that his or her company’s stock is undervalued by the market and is poised to advance in the future. For that specific reason, this article will discuss noteworthy insider buys registered at three U.S.-listed companies.

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 102% over the ensuing 38 months, outperforming the S&P 500 Index by more than 53 percentage points (read more 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.

Covanta Holding Corp (NYSE:CVA) has seen strong insider trading activity on the buy side this month. Director Joseph M. Holsten purchased 35,000 shares on Monday at prices that ranged from $14.36-to-$14.50 per share, lifting his overall holding to 82,538 shares. Earlier this month, President and Chief Executive Officer Stephen J. Jones bought 20,000 shares at a weighted average price of $14.80 and enlarged his direct ownership stake to 40,444 shares. Moreover, Executive Vice President – Supply Chain Michael J. de Castro acquired 10,000 shares at $15.00 apiece and currently holds 25,677 shares. Covanta is among the largest owners and operators of infrastructure for the conversion of waste to energy in the world, while its facilities mainly generate revenue from the disposal of waste, the generation of electricity and steam, and the sale of metal that is recovered during the energy-from-waste process. Shares of Covanta Holding Corp (NYSE:CVA) are down 32% year-to-date, but they have jumped by as much as 8% on Tuesday. Hence, it appears that the stock is poised for a turnaround in the upcoming months. The natural gas market prices in the nation directly impact electricity and steam pricing, so the company’s revenue generated from the sale of energy has been under pressure this year. Covanta’s management anticipates strong future prospects, thanks to its planned cost savings initiatives, freshly-signed long-term contracts and intentions to expand through acquisitions.  Martin Whitman’s Third Avenue Management reported owning a 4.29 million-share stake in Covanta Holding Corp (NYSE:CVA) through its 13F for the third quarter.

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Let’s head to the next page of this daily insider trading article, where we reveal the noteworthy insider buys registered at Gladstone Investment Corporation (NASDAQ:GAIN) and Mobile Mini Inc. (NASDAQ:MINI).

Gladstone Investment Corporation (NASDAQ:GAIN) had an executive buy stock this week. Chairman and Chief Executive Officer David J. Gladstone snapped up 90,000 shares on Monday at a cost of $7.53 per share, boosting his holding to 616,973 shares. The business development company that primarily invests in debt and equity securities of established private businesses in the U.S. has invested $470.4 million in 28 new debt and equity deals since October 2010. The company’s total investment income for the third quarter totaled $13.74 million, up 51.5% year-over-year. This increase was attributable to an increase in both interest income and other income, mainly owing to the increased sized of its portfolio. Meanwhile, shares of Gladstone are nearly 10% in the green year-to-date and are trading at a cheap forward price-to-earnings ratio of 10.16, which compares with the average of 17.35 for the companies included in the S&P 500 Index. Nonetheless, this valuation metric solely relies on the accurateness of analysts’ earnings estimates. Moreover, the company’s current market price is trading below the net asset value of $9.05 per share as of September 30, which hinders the company’s ability to raise additional capital without stockholder approval. Israel Englander’s Millennium Management owns a mere 63,000 shares in Gladstone Investment Corporation (NASDAQ:GAIN) as of September 30.

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Last but not least, Mobile Mini Inc. (NASDAQ:MINI) had a director make two big purchases this week. Director Michael L. Watts purchased a block of 4,586 shares and one of 10,800 shares on Tuesday at a weighted average price of $31.47. After the recent purchases, the Director holds an ownership stake of 67,697 shares. The provider of portable storage and specialty containment solutions has seen its shares decline by 22% this year. The company mainly focuses on renting its portable storage units rather than selling them (approximately 93% of its revenues are generated from rental revenues), as this strategy offers predictable revenue streams. In the meantime, Mobile Mini’s business is highly correlated with the overall health of the economy, while roughly 41% of its rental revenue is derived from the construction industry. Hence, the company is anticipated to grow in the upcoming years, thanks to the high expectations on the construction sector. Mobile Mini generated total revenue of $396.26 million for the nine-month period that ended September 30, up from $322.26 million generated for the same period a year ago. Mobile Mini had $663.4 million in debt on September 30, but the company recently announced that it had entered into an amended revolving credit facility at reduced interest rates. The new $1.0 billion facility offers increased financial flexibility that will enable the company to drive future growth. Royce & Associates, founded by Chuck Royce, cut its position in Mobile Mini Inc. (NASDAQ:MINI) by 12% during the September quarter to 709,500 shares.

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