Analysts and investors are increasingly skeptical about the Federal Reserve’s tightening monetary policy, thanks to the weak economic data and gloomy comments of Fed officials earlier this week. The recent weakness of the U.S dollar reflects the aforementioned skepticism, so it is not all sunshine and roses for the greenback at the moment. The Labor Department is set to reveal fresh data about the strength of the U.S labor market on Friday, which will shed some light on the pace of future interest rate increases. In the meantime, some corporate insiders do not seem to share the grim views of most traders and analysts on the U.S economy at the moment, or at least not as it relates to their companies, as they have been stockpiling shares of their companies over the past several days. The Insider Monkey team identified three companies with heavy insider buying this week, so let’s take a brief look at those purchases and 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). 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 begin our discussion with Triumph Group Inc. (NYSE:TGI), which had two different insiders purchase shares this week. Chief Executive Officer and President Daniel J. Crowley purchased a new stake of 250,000 shares earlier this week at prices in the range of $23.53 to $27.79 per share. The supplier to the aerospace industry announced the appointment of Daniel Crowley as President and CEO at the end of December 2015, so the recent purchase could be interpreted as a sign of commitment to the company’s business. Furthermore, Director Dawne S. Hickton purchased a 5,000-share stake on Tuesday at a weighted average cost of $24.98. The shares of Triumph Group are now down by 52% over the past 12 months, after dropping by 32% since the beginning of 2016.
Earlier this year, The Boeing Company (NYSE:BA), Triumph’s largest client, announced a rate of reduction to the 747-8 program, lowering the production to one plane every two months. The announcement comes after Boeing revealed its plans in September 2015 to insource production of the 747-8 program as of the second half of fiscal year 2019. Boeing generated sales of $1.07 billion for Triumph Group Inc. (NYSE:TGI) during the nine months that ended December 31, which accounted for 38% of the company’s total net sales. This revenue figure compares to $1.22 billion generated during the nine-month period that ended December 31, 2014. Meanwhile, the stock trades at an extremely cheap forward price-to-earnings ratio of 4.77, which compares favorably to the ratio of 14.6 for the Aerospace and Defense industry. However, it is not entirely clear whether Triumph will be able to find new revenue streams or find customers with similar manufacturing content as Boeing, while the existing facilities where the 747-8 program is manufactured could put significant weight on the company’s financial performance if they remain idle. Atlantic Investment Management, founded by Alexander Roepers, reported owning 3.75 million shares of Triumph Group Inc. (NYSE:TGI) through its 13F for the third quarter.
CIT Group Inc. (NYSE:CIT) has seen high insider trading activity on the buy side in recent days, with four insiders acquiring shares this week. To start with, Chairman and Chief Executive Officer John A. Thain bought 50,000 shares on Thursday at $27.31 apiece and currently holds a direct ownership stake of 486,849 shares. Vice Chairman Ellen R. Alemany snapped up 19,000 shares on the same day at prices ranging from $27.24 to $27.32 per share, lifting her overall stake to 87,656 shares. Moreover, Vice Chairman Steven Mnuchin acquired a new stake of 114,623 shares on Thursday at prices that fell between $27.26 and $28.10 per share. He also holds 530,920 shares through the Steven T. Mnuchin Dynasty Trust and 1.59 million shares through the Steven T. Mnuchin Revocable Trust. Last but not least, Director Alan L. Frank purchased 2,000 units of common stock on Thursday for $27.72 each and currently owns 6,675 shares.
The provider of financing, leasing and advisory services to middle market companies has seen its stock decline by more than 39% over the last year. The shares of the company are down by 30% in 2016 alone, which probably prompted activist hedge fund Hudson Executive Capital LP to pressure a potential break up of CIT Group, according to the Wall Street Journal. CIT Group began to be regulated by the Federal Reserve after the acquisition of OneWest Bank last year, which also means that the Fed has to approve the company’s buyback and dividend plans. It should be mentioned though that the stock is currently trading at an extremely attractive forward P/E multiple of 7.58, which compares with the ratio of 12.1 for the financial sector. Billionaire John Paulson of Paulson & Co. initiated a new position in CIT Group Inc. (NYSE:CIT) during the third quarter, consisting of 7.00 million shares as of September 30.
The insider buying activity at Radian Group Inc. (NYSE:RDN) has also been extremely high this week, as seven different insiders bought shares on Wednesday alone. Non-Executive Chairman Herbert Wender purchased 5,000 shares at exactly $10.00 apiece and currently owns 187,670 shares. Chief Executive Officer Sanford A. Ibrahim snapped up 25,000 shares for $10.11 each, lifting his stake to 206,825 shares. According to a separate Form 4 filing, Chief Accounting Officer and Senior Vice President Catherine M. Jackson bought a 34,000-share block at an average price of $10.19 and now holds 61,673 shares. An additional 7,500 shares were purchased by Executive Vice President and General Counsel Edward J. Hoffman, who currently owns 34,911 shares. He bought these shares at $10.05 apiece. Next up is Executive Vice President and Chief Financial Officer J. Franklin Hall, who doubled his overall stake to 10,000 shares. Executive Vice President and Chief Risk Officer Derek V. Brummer purchased 14,000 shares at a price of $10.25 per share, while Director Howard B. Culang acquired 3,200 shares for $10.23 each. The latter currently holds a stake of 8,050 units of common stock, while the former owns 24,913 shares.
The exploding insider buying activity at the provider of mortgage and real estate products and services comes after the company released its fourth quarter and full-year 2015 financial results towards the end of January. The stock has lost 36% over the past 12 months, which has pushed the company’s valuation to extremely attractive levels. For instance, the stock trades at a forward P/E ratio of only 6.00, while the Property and Casualty Insurance industry as a whole has a forward P/E multiple of 11.4. Lee Ainslie’s Maverick Capital holds an ownership stake of 11.85 million shares of Radian Group Inc. (NYSE:RDN) as of the end of the third quarter.