Extensive research on insider trading had previously found that smaller investors can generate substantial returns by simply imitating insiders’ moves, even though the latest studies show that the profitability from piggybacking on insider trading has been decreasing. Nevertheless, large transactions by insiders are always in the spotlights and we have identified three companies that saw a significant insider trading activity in the last couple of days. More specifically, insiders have acquired shares of CrossAmerica Partners LP (NYSE:CAPL) and Extreme Networks Inc. (NASDAQ: EXTR), whereas Cumulus Media Inc. (NASDAQ:CMLS) has had noteworthy insider selling activity recently.
Most investors cannot outperform the market by individually picking stocks, because a randomly picked company has only a 35% to 45% chance (depending on the investment horizon) to outperform the market. Here is where imitating the insider activity comes in handy. 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 picks of hedge funds. Our studies have determined that the 15 most popular small-cap ideas among hedge funds beat the market by nearly a percentage point per month between 1999 and 2012. We have been forward testing the performance of these stocks since the end of August 2012 and they have returned more than 123% over the ensuing 35 months, outperforming the S&P 500 ETF (SPY) by nearly 66 percentage points (read more details here).
We will start by looking at CrossAmerica Partners LP (NYSE:CAPL), a leading wholesale distributor of motor fuels and owner and lessee of real estate used in the distribution of motor fuels. Board director John B. Reilly III purchased 10,000 shares for $23.01 each on August 28, raising his stake to 131,080 shares. Four other insiders acquired an aggregate of 79,000 shares of CrossAmerica Partners in August, including Chief Executive Officer Joseph Topper Jr., who bought 70,000 shares and took his position to 136,304 shares. The stock of CrossAmerica has depreciated by more than 40% since the beginning of the year, so the bullish insider activity at the company might suggest that it might be close to a turnaround. Meanwhile, CrossAmerica’s Board of Directors has recently approved a quarterly distribution of $0.56 per unit, which denotes an increase of 2.7% quarter-over-quarter. Among the investors we track, Mitch Cantor’s Mountain Lake Investment Management initiated a 120,000-share position in CrossAmerica Partners LP (NYSE:CAPL) during the second quarter.