Although plenty of research concludes that securities purchases on the part of insiders tend to beat broader market benchmarks by a significant margin, Insider Monkey does not recommend that investors blindly mimic each insider purchase. Instead, insider trading metrics should serve as additional tools in one’s security analysis process, helping them to build and support a larger investment thesis. The larger investment thesis could be based on expected bottom-line improvement, pressure from activist hedge fund managers or the possibility of a takeover, to name just a few.
At the same time, investors could use insider buying and selling activity, particularly clusters of buying or selling involving more than three insiders, as a stock selection procedure. Companies with strong insider buying or selling could represent possible ‘buy’ or ‘sell’ candidates that require further research. With that in mind, the following article will discuss a set of noteworthy insider transactions reported with the SEC on Tuesday.
At Insider Monkey, we track around 750 hedge funds and institutional investors. Through extensive backtests, we have determined that imitating some of the stocks that these investors are collectively bullish on can help retail investors generate double digits of alpha per year. The key is to focus on the small-cap picks of these funds, which are usually less followed by the broader market and allow for larger price inefficiencies (see more details).
CEO of Struggling Galvanizing and Electrical Products Company Buys Shares
The man in charge of AZZ Inc. (NYSE:AZZ) purchased some shares at the beginning of the week. Thomas E. Ferguson, Chief Executive Officer and President of AZZ since November 2013, bought 7,500 shares on Monday at a price tag of $55.24 each. Following the recent purchase, Mr. Ferguson currently holds an ownership stake of 29,276 shares.
The aforementioned insider purchase comes shortly after the provider of galvanizing services, welding solutions, specialty electrical equipment, and services to the power generation, transmission, distribution, refining, and industrial markets released disappointing financial results for the three months ended August 31. AZZ Inc. (NYSE:AZZ)’s results for the second quarter of its fiscal year 2017 reflected the sustained impact of the depressed oil and gas, petrochemical, and solar markets. The company’s revenue for the three-month period was $195 million, down from $214.2 million recorded a year earlier. Meanwhile, net income fell by 41.9% year-over-year to $10 million. AZZ shares have plunged by 15% in the past month, bringing their year-to-date return down to a loss of 2%. Royce & Associates, founded by Chuck Royce, reported ownership of 69,652 shares of AZZ Inc. (NYSE:AZZ) in its 13F filing for the second quarter.
The next two pages of this insider trading article will discuss the insider trading activity observed at four other companies.