All major U.S stock indexes closed sharply in the green in the first trading session of December, posting the biggest gains seen over the past several sessions. The Dow Jones Industrial Average closed 168.43 points in the green on Tuesday, while the Standard and Poor’s 500 Index climbed by roughly 1.1%. The Federal Reserve is expected to raise interest rates this year, while the European Central Bank is expected to expand its bond-buying program. The former event is set to test the strength of the U.S economy, while the latter will most likely diminish the ongoing concerns about a slowing global economy. However, it is close to impossible to predict how U.S equities will react to these two major events, as there are too many unknown variables. Meanwhile, some companies’ corporate insiders have been piling up more stock of their companies, which points to the fact that these individuals anticipate making money by investing in their companies’ stock. That being said, this article will discuss several noteworthy insider buys registered at three companies recently.
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.
Let’s start out by examining the insider buying activity at eBay Inc. (NASDAQ:EBAY), which has witnessed the first purchase by an insider in more than two years. Director Paul S. Pressler acquired a 5,140-share stake on Monday at a weighted average price of $29.12. The online retailer/auction house has seen its shares gain more than 8% over the past three months, yet they are still trading at an attractive trailing price-to-earnings ratio of 14.75. This compares with the average of 23.28 for the companies contained within the S&P 500 Index. eBay Inc. (NASDAQ:EBAY) generates its revenue from two main sources: transaction revenue, and marketing services and other revenue. Although both revenue streams have been slackening recently, the global commerce leader has been able to surpass earnings estimates in each of the last four quarters. The company’s third-quarter net transaction revenue added up to $1.66 billion, compared with $1.70 billion reported last year. Meanwhile, its marketing services revenue declined to $440 million from $447 million year-over-year. eBay lost some of its charm among the hedge funds monitored by Insider Monkey during the third quarter, as the number of smart money investors with positions in the company declined to 83 from 99 quarter-over-quarter. Daniel S. Och’s OZ Management is bullish on eBay Inc. (NASDAQ:EBAY), owning 21.75 million shares on September 30.