U.S equities closed sharply in the green on Friday, putting an emphatic end to a five-day losing streak. Nonetheless, the major U.S stock benchmarks were down by approximately 1% for the week, extending their year-to-date decline to about 8%. Expectedly, there was a surge in insider buying activity last week, as corporate insiders were seeking to profit from battered valuations and the high uncertainty in the market. In fact, last week’s volume of insider buying more than doubled relative to the previous week, whereas the volume of insider selling slightly decreased week-over-week. As a result, the ratio of insider selling to insider buying decreased quite significantly week-over-week, which definitely serves as an optimistic indicator about the future course of U.S equities. To be more detailed, the surging insider buying clearly indicates that business conditions are not deteriorating to the degree that the stock market’s performance would indicate. The Insider Monkey team identified three companies with noteworthy insider purchases last week, so let’s take a look at the recent performance of the companies in question.
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 (read more details here).
Twenty-First Century Fox Inc. (NASDAQ:FOX) is one of the many companies that witnessed noteworthy insider buying last week. James W. Breyer, a member of the company’s Board of Directors since 2011, purchased a new stake of 43,000 class A shares on Thursday at a price of $24.50 per share. The shares of the diversified media and entertainment company are down by 27% over the past 12 months, which partly explains the Director’s sizable purchase. The company generated revenue of $13.45 billion during the six months that ended December 31, down from the $15.94 billion that it reported for the same period of the prior year. The decrease was mainly attributable to the sale of its direct broadcast satellite (DBS) businesses in November 2014, but revenue decreased by 3% year-over-year even when excluding the activity of the DBS businesses. The decrease in content revenue, which severely impacted the company’s top-line result, was somewhat offset by higher affiliate fee revenue due to higher average rates per subscriber and higher advertising revenue. Twenty-First Century Fox Inc. (NASDAQ:FOX)’s Cable Network Programming segment, which accounted for 41% of total revenue for the six-month period, saw revenue increase by 8% year-over-year. The stock currently trades at a forward P/E multiple of 11.26, which is somewhat below the 13.90 average for the Movies & Entertainment industry. Individual investors considering following insiders’ footsteps should also bear in mind that the company pays out an annualized dividend of $0.30 per share, which offers a current dividend yield of 1.21%. Donald Yacktman’s Yacktman Asset Management owns 38.67 million class A shares of Twenty-First Century Fox Inc. (NASDAQ:FOX) as of December 31, down by 1.94 million shares quarter-over-quarter.
Next up is Delphi Automotive PLC (NYSE:DLPH), which saw its most influential insider purchase shares this past week. President and Chief Executive Officer Kevin P. Clark snapped up 17,000 ordinary shares on Thursday at prices that ranged from $57.81 to $59.91 per unit, all of which are held by the Kevin P. Clark Revocable Trust. After the recent purchase, the trust fund holds a stake of 97,670 shares. Moreover, the CEO holds an additional direct ownership stake that comprises 329,086 ordinary shares. So should investors follow suit and purchase Delphi shares?
The stock of the vehicle components manufacturer is 28% in the red year-to-date, presumably because of increased worries that a slowing global economy will hurt demand for the company’s products. The automotive parts industry witnessed increased global customer sales and production schedules in both 2014 and 2015, but the slumping economic growth and increasing market volatility in China led to lower automotive production growth rates in the world’s second-largest economy. The sustained economic uncertainties in South America have also hindered the growth in the automotive parts industry, which resulted in a 19% decline in South American vehicle production last year. The company’s net sales reached $15.17 billion in 2015, down from $15.50 billion in 2014. Despite experiencing a decline in top-line results, Delphi Automotive’s full-year 2015 net income grew to $1.54 billion from $1.44 billion year-over-year. To sum up, the stock appears to represent an attractive investment opportunity at the moment if solely relying on its forward P/E multiple of 8.70, which is well below the average of 15.25 for the companies included in the S&P 500 and slightly below the 9.30 ratio for the Auto Parts & Equipment industry, which seems to be undervalued relative to the broader market at the moment. Ken Griffin’s Citadel Advisors LLC upped its stake in Delphi Automotive PLC (NYSE:DLPH) by nearly 136,000 shares during the fourth quarter to approximately 500,000 shares.
Kennametal Inc. (NYSE:KMT) saw three different insiders buy shares last week, including its top executive. To begin with, President and Chief Executive Officer Ronald M. DeFeo bought 14,280 shares last Tuesday at a cost of $17.46 per share, lifting his overall holding to 63,320 shares. Director Philip A. Dur purchased 4,825 units of common stock on the same day for $17.61 each and currently owns 13,991 shares. Last but not least, Cindy L. Davis, another member of the company’s Board of Directors, bought 1,600 shares last week at a weighted average price of $17.36, boosting her stake to 4,213 shares.
The global manufacturer and supplier of tooling, engineered components and advanced materials used in production processes has seen its shares decline by 49% over the past year, mainly because of a challenging global macroeconomic environment. The company was forced to reduce its fiscal year 2016 guidance in mid-December due to sustained declines in industrial production, especially in the Chinese automotive industry and in coal mining production in the U.S and China. Kennametal generated sales of $1.08 billion during the six months that ended December 31, which marked a decrease of 21% year-over-year. The decrease was mainly due to a decline of 13% in organic sales and a 7% impact from exchange rate headwinds. The company’s depressed sales activity in the transportation end market was mainly impacted by lower light vehicle production levels in China and destocking in Asia. The recent insider buying at Kennametal might serve as a sign that the company is currently observing or anticipating improving market conditions. Clint Carlson’s Carlson Capital LP trimmed its position in Kennametal Inc. (NYSE:KMT) by roughly 850,000 shares during the final quarter of 2015, to 2.40 million shares.