Last week’s dollar volume of insider buying skyrocketed relative to the volume recorded for the prior week, thanks to the insider buying registered at United Continental Holdings Inc. (NYSE:UAL) (read article). In fact, the insider buying at the airline carrier accounted for approximately 85% of last week’s dollar volume of insider buying. Meanwhile, the volume of insider selling was flat week-over-week, so last week’s ratio of insider selling over insider buying dropped notably when compared to the extremely high ratio registered in the prior week (five versus 74). As the insider buying activity has been gaining steam in the past several trading sessions, retail investors may stumble upon more attractive investment opportunities signaled by insider trading metrics. Directors and executives mostly buy securities of their companies because they believe those securities are undervalued, and they tend to make profitable trades on most occasions. Insider Monkey processed most Form 4 filings submitted with the SEC on Friday and identified three companies with fresh noteworthy insider buying.
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).
Closed-End Investment Company That Trades below NAV Witnesses Noteworthy Insider Buying
Let’s begin our discussion by looking into the insider buying at Central Securities Corp. (NYSEMKT:CET), which had two different insiders buy shares in April. Jay R. Inglis, Board member since 1973, purchased 3,000 shares on Wednesday for $19.85 each, 2,300 shares on Thursday for $19.65 each, and 2,000 shares on Friday at $19.44 apiece. After the recent purchases, Mr. Inglis currently owns 12,066 shares. Moreover, Vice President John C. Hill bought 1,000 units of common stock in mid-April at a price of $19.38 per unit, lifting his ownership to 14,250 units.
Central Securities Corp. (NYSEMKT:CET) operates as a closed-end investment company that primarily invests in common stocks, but may also invest in other securities such as bonds, convertible bonds, preferred stocks, convertible preferred stock, warrants, and other securities. The company’s net assets per common share reached $24.07 on March 31, as compared to $23.53 per share at the end of December. This represents an increase of slightly more than 2%. Meanwhile, Central Securities’ share price gained less than 1% during the first quarter of this year, so the company’s stock performance does not entirely reflect actual performance of its portfolio.
It should be noted that the investment company’s shares were trading at a discount of at least 20% relative the net assets per common share figure at the end of March, which might serve as the primary explanation for the aforementioned insider buying. Andrew Weiss’ Weiss Asset Management acquired a new stake of 17,624 shares of Central Securities Corp. (NYSEMKT:CET) during the final quarter of 2015.