More Insider Buying at Ambac Financial Group Inc. (AMBC), Plus Two Other Companies with Interesting Insider Buying Activity

While it is widely known that corporate insiders buy shares of their companies on the open market for one simple reason – they believe Mr. Market severely undervalues those shares, insider trading watchers should still be very careful when deciding whether an insider purchase is informative or not. It is true that insider purchases on the open market tend to beat the broader market on aggregate, but the key word here is aggregate. For that reason, Insider Monkey would like to recommend three tips that can enable retail investors to identify informative insider purchases. The most important tip of those three would be to look for clusters of insider buying, which usually implies that there is a consensus among insiders that their companies’ shares are undervalued. Another tip would be to avoid insider transactions conducted under pre-arranged trading plans, as fresh research shows that spur-of-the-moment insider purchases generate higher returns than those conducted under trading plans. Last but not least, insider trading watchers should look for long-time insiders, not newly-appointed directors or executives, who purchase shares for the first time, as there must be a strong reason why those insiders decided to initiate stakes after serving at the company for a few years. Meanwhile, Insider Monkey processed most Form 4 filings submitted with the SEC on Thursday and pinpointed three companies with relatively notable insider buying, of which one has been consistently registering insider buying in the past several weeks or so.

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).

While we don’t usually cover the insider buying activity of a particular company over and over again, the recent insider buying witnessed at Ambac Financial Group Inc. (NASDAQ:AMBC) simply cannot be passed up. To begin with, Director Alexander David Greene snapped up 10,000 shares on Wednesday at a price tag of $15.05 per share, boosting his overall holding to 13,000 shares. Moreover, Chief Executive Officer Nader Tavakoli bought 16,200 shares on the same day for $14.84 per share, which lifted his ownership to 179,487 shares.

The U.S. bond insurer, which emerged from bankruptcy in 2013 after getting beaten down in the financial crisis of 2008, has been challenged by activist hedge fund Canyon Capital Advisors LLC, co-founded by Joshua Friedman and Mitchell Julis, to accelerate the settlement of $4 billion in insurance claims. Canyon Capital launched a proxy fight in mid-March, nominating three director nominees, including Frederick Arnold, John Brecker, and Eugene Davis, for election to the Board at the company’s upcoming meeting of shareholders. According to fresh filings, the Los Angeles-based hedge fund owns 2.2 million shares of Ambac Financial Group Inc. (NASDAQ:AMBC) that are currently valued at approximately $32 million, but the fund’s credit exposure, including deferred payments, is believed to be as much as $376 million. The bond insurer has urged shareholders to support the current slate of directors at the company’s upcoming meeting of shareholders, saying that “Canyon has as its singular objective the accelerated payment of Canyon’s credit claims, not the best interests of Ambac’s shareholders”. Ambac Financial’s both financial position and stock performance have been also weighted by its exposure to the Commonwealth of Puerto Rico, which has announced that its cannot meet its obligations, as well as revealed plans to impair some of its creditors (or all creditors). According to a fresh news story written by Reuters, Ambac Financial is competing to acquire industry peer CIFG Assurance North America (whose Chairman is Canyon’s director nominee, Eugene Davis), which may serve as an alternative revenue source for the company. The shares of the New York City-based bond insurer are down 42% in the past 12 months, but are 3% in the green year-to-date. The hedge fund sentiment towards Ambac Financial declined notably in the fourth quarter of 2015, with the number of funds invested in the company shrinking to 16 from 27 quarter-on-quarter.

Let’s head to the next two pages of this insider trading article, where we will discuss the insider buying registered at Live Ventures Inc. (NASDAQ:LIVE) and Ascena Retail Group Inc. (NASDAQ:ASNA).

Live Ventures Inc. (NASDAQ:LIVE) had its most influential executive purchase some shares earlier this week. Jon Isaac, Chief Executive Officer, Chief Financial Officer and President, purchased 8,633 shares on Thursday at a weighted average cost of $1.58 per share. Mr. Isaac, who purchased an additional 15,000 units of common stock in March, currently owns a stake of 8.33 million shares, which accounts for 49.24% of the company’s outstanding shares. Although the size of the recent purchases are insignificant relative to Mr. Isaac’s overall ownership, the recent insider trading activity may be worth attention because there had not been any insider buying since the end of 2014 until this March.

Live Ventures is a diversified holding company that started to expand its focus beyond promoting online marketing solutions to small and medium businesses last year. In July 2015, the company acquired 80% interest in Marquis Industries Inc., a carpet manufacturer, a producer of innovative yarn products, and a reseller of hard surface flooring products. Through the end of November 2015, Live Ventures acquired the remaining 20% interest in Marquis for $2 million, which included $1.50 million in cash and a note payable of $500,000. The freshly-acquired company focuses on the residential, niche commercial and hospitality end-markets, serving more than 2,000 customers. Live Ventures also operates real-time “deal engine” platform LiveDeal.com, which connects restaurants and consumers across the United States. Moreover, the company operates an online consumer products retailer, called ModernEveryday, which sells a wide variety of products such as kitchen and dining products, apparel and sporting goods, children’s toys, among other things.

Live Ventures generated revenues of $20.10 million in the first quarter of fiscal 2016 that ended December 31, up from only $8.01 million reported for the same period of the prior year. Indeed, the increase in the company’s top-line figure for the quarter was mainly driven by the acquisition of Marquis Industries. Live Ventures continues to seek opportunities to acquire profitable companies in the foreseeable future, so retail investors should keep an eye of this reborn diversified company. The company has seen its market value drop 50% in the past 12 months, but its market capitalization has gained 8% since the beginning of 2016. D.E. Shaw & Co. L.P., founded by David E. Shaw, owns 18,023 shares of Live Ventures Inc. (NASDAQ:LIVE) as of December 31.

Ascena Retail Group Inc. (NASDAQ:ASNA) has seen four different insiders purchase shares thus far in 2016, so let’s take a look at the most recent insider buying activity. In a Form 4 filing submitted with the SEC on Thursday, Director Katie J. Bayne reported purchasing 4,000 shares on Wednesday at a price of $10.12 per share. Following the recent purchase, the Director currently owns 6,696 shares. Catherine E. Buggeln, another member of the company’s Board of Directors, purchased 5,000 shares in mid-March at $10.25 apiece, which lifted her ownership to 15,000 shares.

Ascena Retail Group is a specialty retailer of apparel for women and tween girls that acquired ANN Inc., a retailer of women’s apparel, shoes and accessories sold under the Ann Taylor and LOFT brands, in August 2015. The company operates more than 4,900 stores across the United States, Canada and Puerto Rico. ANN Inc. was acquired for a total consideration of $2.1 billion, which consisted of $1.75 billion in cash and the issuance of 31.2 million shares of Ascena common stock. It is important to note that the cash portion of the deal was funded with borrowings under a $1.8 billion seven-year, variable-rate term loan. Let’s now take a look at the impact of the freshly-made acquisition on the company’s overall performance. Ascena Retail Group’s net sales for the six months that ended January 23 totaled $3.51 billion, which increased $1.03 billion or 41.5% year-on-year. Expectedly, the increase was mainly driven by the acquisition of ANN in August 2015. Comparable sales from the company’s legacy Ascena brands decreased $110.4 million or 5% year-on-year to $2.20 billion. This decline was mainly attributable to lower sales at Justice, which reflect the new, less promotional selling strategy.

The shares of the specialty retailer have declined 34% in the past 52 weeks and are down 3% in 2016 alone. The stock is currently priced around 10.2-times expected earnings, significantly below the forward P/E multiple of 20.7 for the Apparel Retail industry. The number of money managers from our system with stakes in Ascena increased to 26 from 23 during the December quarter; those 26 hedge fund vehicles collected nearly 18% of the company’s total number of outstanding shares. Royce & Associates, founded by Chuck Royce, reported owning 3.18 million shares of Ascena Retail Group Inc. (NASDAQ:ASNA) as of the end of December.

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