Massive Insider Buying Witnessed at 3 Companies, Including This Fresh Acquisition Target

High-ranking executives have more knowledge and insight concerning the state of their companies, the market conditions within their industries, and possible future developments than any analyst or investor out there. If corporate insiders are buying shares of their own companies, they usually see great potential in those shares. That does not necessarily mean that insiders tend to buy ahead of an imminent takeover, new drug approval or earnings surprise, but they usually have a better understanding of whether the market appropriately values their companies’ firm-specific developments and industry trends. When executives and directors notice that the market is not appropriately responding to changing market conditions or new product developments, insiders usually buy those seemingly cheap, undervalued stocks. In fact, past research shows that corporate insiders are great at trading equities, and that retail investors have a better chance of picking potential winners by smartly following insiders’ moves. Insider Monkey processed a few dozen Form 4 filings submitted with the SEC on Monday and pinned down three companies with noteworthy insider purchases that could be worth emulating.

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).

Let’s begin our discussion by looking into the insider trading behavior witnessed at Acacia Research Corp (NASDAQ:ACTG), which saw two corporate insiders purchase sizable blocks of shares this past week. To start with, Interim Chief Executive Officer Marvin Key purchased 65,000 shares on Thursday at a cost of $3.76 per share, lifting his overall holding to 135,833 shares. The CEO snapped up an additional 35,000 shares at the beginning of this month for $3.17 each. Moreover, G. Louis Graziadio III, a member of the company’s Board of Directors since February 2002, purchased 74,196 shares on Thursday at a price of $3.79 per share, which increased his overall stake to 159,931 shares.

Interestingly enough, the CEO’s 35,000-share purchase in early March was followed by an unsolicited proposal from ARC Acquisition Company LLC to purchase all outstanding common stock of Acacia Research for $3.72 per share. On March 16, Acacia Research Corp (NASDAQ:ACTG) announced that its Board of Directors had determined that the aforementioned proposal was inadequate. The company’s Board, including the interim CEO, expressed its belief that the shares of Acacia Research are undervalued at current levels, which surely explains the reasoning behind the CEO’s own purchases. The recent announcement made by Acacia Research’s management stated: “At this time, the Company is not for sale”.

Acacia Research engages in licensing and enforcing patent technologies by partnering with investors and patent owners to unlock the financial value in their patented inventions. It should also be mentioned that the company’s Board of Directors also announced the approval of a Tax Benefits Preservation Plan, aimed at protecting the company’s ability to use net operating loss carryforwards (NOLs) and tax credits to offset future taxable income. This plan was designed to reduce the odds that Acacia Research will undergo an ownership change, as the company cannot use its NOLs if facing such a change. Shares of Acacia Research are down by 3% since the beginning of 2016 despite having gained 7% in the past month. John W. Rogers’ Ariel Investments reported ownership of 3.58 million shares of Acacia Research Corp (NASDAQ:ACTG) through the latest round of 13F filings.

The next page of this insider trading article discusses the insider buying witnessed at Patriot National Inc. (NYSE:PN) and Ardelyx Inc. (NASDAQ:ARDX).

Patriot National Inc. (NYSE:PN) has had four different insiders purchase shares this month, a cluster of insider buying that is definitely worthy of closer inspection. To begin with, Director John R. Del Pizzo bought 9,000 shares on Thursday at $6.58 apiece, enlarging his overall holding to 120,865 shares. Judith L. Haddad, Executive Vice President, Chief Information Officer and Chief Technology Officer, snapped up 2,500 units of common stock last Monday at a cost of $6.25 per share, which lifted her ownership to 77,500 shares. On March 3, Director Charles H. Walsh acquired a 50,000-share block for only $4.06 per share, boosting his equity investment in the company to 70,894 shares. More importantly, Chairman, President and Chief Executive Officer Steven M. Mariano reported buying 60,000 shares last week at prices that ranged from $6.13 to $7.00 per share. In February, Mr. Mariano transferred 691,928 shares from the Steven M. Mariano Trust to a corporation that he controls, while an additional 43,553 shares owned directly by the CEO were transferred to that same corporation yesterday. After these transactions, Mr. Mariano holds a direct ownership stake of 12.02 million shares, as well as 1.81 million shares held through the aforementioned corporation and 626,428 shares held via the Steven M. Mariano Trust.

Patriot National is a national provider of technology-enabled insurance and employer solutions within the workers’ compensation marketplace for insurance companies, employers and other entities. The company’s gross reference premium written, which refers to the aggregate premium written by or for the company’s insurance carrier partners, totaled $470.24 million for 2015, up from $335.14 million in 2014. The increase was mainly driven by an increase in Guarantee Insurance gross reference premium written, as well as the inception of new contracts with Scottsdale, American International Group Inc (NYSE:AIG), and other insurance carrier clients. Most of the company’s services, such as background checks, fraud investigation and healthcare cost containment, have become somewhat mandatory by law or industry standard practices. Therefore, Patriot National might be well-positioned to grow its top-line results in the foreseeable future without facing too much risk on the downside. Shares of Patriot National are up 6% year-to-date, after having gained 17% in the past month alone. Despite that, the stock is still priced at only 6.2-times expected earnings, versus the forward P/E ratio of 15.4 for the Insurance Brokers sector. Ken Griffin’s Citadel Advisors LLC owns 697,207 shares of Patriot National Inc. (NYSE:PN) as of December 31.

Ardelyx Inc. (NASDAQ:ARDX) had one member of its Board of Directors purchase a large block of shares this week. Director Gordon Ringold purchased a new stake of 15,000 shares on Monday at prices varying from $7.64 to $7.86 per share. The stake is entirely held by the Barthold Family Foundation, for which Mr. Ringold serves as a trustee. The Director also holds an indirect ownership stake of 10,000 shares through his Individual Retirement Account (IRA).

Ardelyx is a clinical-stage biopharmaceutical company that focuses on the discovery and development of minimally-systemic therapeutic drugs for the treatment of gastrointestinal and cardio-renal diseases. The company has developed a proprietary drug discovery and design platform that facilitates the discovery and design of novel drug candidates in a cost-efficient manner. Ardelyx’s lead product candidate, tenapanor, is currently being studied in two pivotal Phase 3 clinical studies in patients suffering with constipation-predominant irritable bowel syndrome, or IBS-C. The company also initiated a separate Phase 2b clinical trial to evaluate the efficacy of tenapanor in the treatment of hyperphosphatemia, or elevated serum phosphorus, in ESRD patients. According to fresh estimates, roughly 4.4 million people in the United States suffer with IBS-C and approximately 1.00 million of those people have been diagnosed with it. Moreover, there are an additional 6.6 million IBS-C patients in Europe and roughly 3.4 million in Japan, so the market potential of tenapanor seems to be quite promising. The aforementioned Phase 3 studies were commenced in the fourth quarter of 2015 and the company anticipates results from those trails in 2017. Shares of Ardelyx are 58% in the red year-to-date, which appears to justify the recent insider buying. Peter Kolchinsky’s RA Capital Management cut its stake in Ardelyx Inc. (NASDAQ:ARDX) by approximately 493,000 shares in the December quarter, ending the year with 571,444 shares.

Disclosure: None