Most stock market participants are looking forward to the Santa Claus Rally, which usually occurs during the last five trading sessions of each year. The S&P 500 Index has not posted losses in the period between November 20 and the end of the year since 2002, but the index is on track to break this trend in 2015. Nonetheless, some companies’ insiders were bullish on their companies’ stock last week and boosted up their holdings in expectations of strong future gains. Insider buying is relatively straightforward to interpret and represents a clear signal of strong future prospects. At the end of the day, it is hard to believe that an insider would invest his or her hard-earned capital in equities without anticipating an attractive return. With this in mind, the following article discusses several noteworthy insider buys reported with the SEC during the holiday-shortened week ahead of Christmas.
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. We have been forward testing the performance of these stock picks since the end of August 2012 and they have returned 102% over the ensuing 38 months, outperforming the S&P 500 Index by more than 53 percentage points (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.
Actuant Corporation (NYSE:ATU) saw three different executives buy shares last week. To start with, Executive Vice President Eugene Edward Skogg purchased 5,000 Class A shares on Tuesday at prices that ranged from $23.66 to $23.69 per share, lifting his overall holding to 50,415 shares. Executive Vice President and Chief Financial Officer Andrew Lampereur snapped up a 20,000-share block on the same day at a weighted average price of $23.12 and currently holds 337,058 shares. Last but not least, Chairman, President and Chief Executive Officer Robert Arzbaecher bought 130,000 Class A shares on Tuesday and 80,000 shares on Wednesday at prices ranging from $22.79 to $24.44 per share. After the recent sizable purchases, the CEO currently holds 394,294 shares. The shares of this diversified company that designs and manufactures a wide range of industrial products and systems are down 9% for the year. Actuant Corporation (NYSE:ATU) mainly operates in three segments: industrial, energy, and engineered solutions. All these operating segments reported sluggish revenue growth for fiscal 2015, with the company’s total net sales declining to $1.25 billion from $1.40 billion reported for fiscal 2014. The energy segment was mainly impacted by a reduced capital spending and deferred maintenance activity in the oil and gas industry, which was in turn affected by declining crude oil prices. Meanwhile, the performance of the engineered solutions segment was impacted by a lower demand in auto, off-highway equipment and agriculture markets. Mason Hawkins’ Southeastern Asset Management added a 5.28 million-share position in Actuant Corporation (NYSE:ATU) during the third quarter.
Marriott International Inc. (NASDAQ:MAR) is another company that had an insider buy stock this past week. Director Susan C. Schwab reported buying 364 Class A shares on Wednesday at a price of $68.59 apiece, and currently holds 721 shares. In mid-November, Marriott and Starwood Hotels & Resorts Worldwide Inc. (NYSE:HOT) announced a merger agreement that can create the world’s largest hotel company, with more than 5,500 hotels worldwide. Starwood shareholders are set to receive 0.920 of Class A Marriott shares and $2.00 in cash for each share of Starwood’s common stock. The worldwide operator and franchisor of hotels and timeshare properties has seen its shares decline nearly 12% so far in 2015. Meanwhile, the stock trades at a trailing price-to-earnings ratio of 22.77, which is slightly below the average of 22.95 for the companies included in the S&P 500. Nonetheless, this valuation metric does not take into account the potential benefits of the possible merger between the two hospitality giants. The company’s focus on long-term management contracts and franchising diminishes the volatility of its earnings figures during periods of weak economic conditions, while its portfolio of hotels is constantly extending without substantial investments. A number of 29 hedge funds from our database were invested in the company at the end of the third quarter, amassing a mere 2.70% of its outstanding common stock. Ken Heebner’s Capital Growth Management acquired a new stake of 835,000 shares in Marriott International Inc. (NASDAQ:MAR) during the September quarter.
Farmers National Banc Corp (NASDAQ:FMNB) reported an unusual volume of insider buying last week, as three different insiders purchased shares. Director Earl R. Scott purchased 1,000 shares on Thursday at a price of $8.08 per share and currently holds 17,261 shares. Mark R. Witmer, Senior Executive Vice President and Chief Banking Officer, also bought a 1,000-share block on Wednesday for $8.02 each, boosting up his holding to 112,907 shares. Chairman Lance J. Ciroli acquired 500 shares on the same day at $8.00 apiece, increasing his stake to 36,023 shares. The one-bank holding company offers banking services via its nationally-chartered subsidiary called the Farmers National Bank of Canfield. The company’s shares are almost 3% in the red year-to-date and trade at an attractive forward P/E ratio of 11.29, which is substantially below the mean of 17.47 for the companies included in the S&P 500 Index. Farmers National’s net income for the first nine months of 2015 totaled $4.9 million, down from $6.8 million reported for the same period last year. This decrease was mainly attributable to increased merger activity expenses, as the company completed the mergers of the parent companies of 1st National Community Bank and First National of Orrville earlier this year. Neil Chriss’ Hutchin Hill Capital upped its position in Farmers National Banc Corp (NASDAQ:FMNB) by 16% during the July-to-September period to approximately 233,000 shares.