Insider buying activity has been gaining steam in the past several days, which may point to attractive investment opportunities. As a general rule, heavy insider buying is interpreted as a bullish signal by most stock market participants because there is only one reason corporate insiders are buying shares in their own companies. Unlike many indicators based on historical data, insider buying usually serves as a forward-looking indicator. Directors and executives have up-to-date information about pretty much all factors that affect their companies’ future outlook, which makes us believe that they have a competitive edge over non-insiders when trading securities. Most of the time, insider purchases show that corporate insiders believe their company is worthy much more than the price tag offered by Mr. Market and they tend to be accurate on most occasions. Insider Monkey processed the majority of Form 4 filings submitted with the SEC on Wednesday and pinned down three companies with noteworthy insider buying.
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 imitating 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).
This Struggling Airline Had Seven Different Insiders Purchase Stock This Week
After United Continental Holdings Inc. (NYSE:UAL)’s Chief Executive Officer and President Oscar Munoz purchased $1 million worth of stock on Friday, seven different Board members and executives followed suit. To begin with, Chief Operations Officer and Executive Vice President Gregory L. Hart bought 2,000 shares on Tuesday for $49.90 each, boosting his overall holding to 36,466 shares. Director James A. C. Kennedy also snapped up 2,000 shares on the same day at $49.90 apiece, lifting his ownership to 2,900 shares. Moreover, freshly-appointed Non-Executive Chairman Robert A. Milton purchased a new stake of 1,000 shares on Tuesday at a price of $49.14 per share. Gerald Laderman, Acting Chief Financial Officer and Senior Vice President of Finance, acquired 5,000 shares on Wednesday at prices that ranged from $48.73 to $48.80 per share, which lifted his stake to 40,774 shares. James M. Whitehurst, another freshly-appointed Board member, purchased a 10,000-share stake on Wednesday at a price tag of $49.23 per share. Michael P. Bonds, Executive Vice President of Human Resources and Labor Relations, purchased 2,000 units of common stock on Monday at a cost of $48.38 per unit, after which Mr. Bonds currently owns 52,865 units. Last but not least, Executive Vice President and General Counsel Brett J. Hart bought 5,000 shares on Monday at prices varying from $49.07 to $49.10 per share, which increased his holding to 59,579 shares.
The shares of the carrier have plummeted 13% over the past five trading sessions, after the company provided weaker-than-expected outlook for passenger revenue per available seat mile (PRASM) for the current quarter. The stock is down 14% year-to-date and trades at a forward P/E multiple of only 5.7, which is significantly below the ratio of 17.8 for the S&P 500 Index. The PRASM figure is anticipated to decline in the range of 6.5%-to-8.5% during the current quarter, after dropping 7.4% in the first quarter. The airline’s CEO urged for “a little more patience” during the earnings call, saying that “we have a couple of new board members – I will lean hard on them”. Therefore, the massive insider buying at the company appears to suggest that Board members and executives are indeed prepared for United Continental’s turnaround. David Keidan’s Buckingham Capital Management owns 45,345 shares of After United Continental Holdings Inc. (NYSE:UAL) as of March 31.