In this article, we will be discussing the insider buying activity at three companies. But first, let’s make you familiar with why Insider Monkey tracks insider trading activity. To begin with, we consider insider buying to be more informative than insider selling simply because “Insiders might sell their shares for any number of reasons, but they buy them for only one: they think the price will rise”. This is a great quote of Peter Lynch and makes a lot of sense. Extensive research has found that insiders tend to greatly outperform the broader market, despite the fact that their trades have been less predictive over time. Even so, we reckon that tracking insider trading activity should be a critical part of each investor’s stock picking approach. Going back to the three companies mentioned above, this article will investigate the insider buying activity at Dorian LPG Ltd (NYSE:LPG), Civeo Corporation (Canada) (NYSE:CVEO), and Kayne Anderson Midstream Energy Fd Inc. (NYSE:KMF).
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 118% over the ensuing 36 months, outperforming the S&P 500 Index by nearly 61 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.
Let’s start out by studying the insider trading activity at Dorian LPG Ltd (NYSE:LPG), a liquefied petroleum gas (LPG) shipping company. Director Ted Kalborg reported the acquisition of a 20,000 share-stake at a price of $10.20 per share, which was purchased by Christmas Common Investments Ltd. which has Kalborg Trust as the sole shareholder. At the same time, Chief Financial Officer Theodore B. Young acquired 1,000 shares at a weighted average price of $10.57 last week, enlarging his stake to 105,082 shares. According to the earnings report released by Dorian LPG two months ago, Asia accounted for roughly 30% of the U.S exports of LPG. Similarly, there was strong fundamental demand for LPG at the time, but that quickly changed with the growing concerns about China’s economic slowdown. Thus, the shares of Dorian LPG have embarked on a steep downtrend since mid-July after returning 20% in the first half of the year. The stock has lost hold of all the gains realized during that period and has now lost more than 21% since the beginning of the year, which might point to the fact that these insiders are buying shares with the belief that they are cheap. Michael Lowenstein’s Kensico Capital is the top shareholder of Dorian LPG Ltd (NYSE:LPG) within our database, owning 8.01 million shares as of June 30.