U.S equities retreated during the first two trading days of this week, after posting their largest one-day gains in the past several months on Friday. The falling oil prices have put significant pressure on the energy and raw-material industries, which have dragged down all major U.S stock indexes this week. It might be relatively hard to stumble upon great buying opportunities amid the increased volatility and uncertainty, so one can turn his or her attention to insider buying activity to point the way. This type of activity is generally perceived as a bullish sign, as it is highly unlikely that an insider would purchase shares without expecting value appreciation in the future. For this reason, this article will disclose several noteworthy insider purchases witnessed at three U.S-listed companies.
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.
Let’s kick off our discussion by investigating the insider buying activity at Wynn Resorts Limited (NASDAQ:WYNN). Chief Executive Officer Stephen A. Wynn reported purchasing a whopping 1.0 million shares since Friday, at prices in the range of $61.77-to-$64.50 per share, boosting his stake to 1.04 million shares. The casino magnate also holds an indirect ownership stake of 10.03 million shares through the Wynn Family Limited Partnership.
The owner and operator of destination casino resorts has seen its shares skyrocket by more than 9% in today’s pre-market trading session as a result of CEO’s sizable stock purchase. The struggling Macau gaming market has significantly impacted Wynn Resorts Limited (NASDAQ:WYNN)’s financial and stock performance this year. For instance, its Macau Operations net revenue for the nine-month period that ended September 30 totaled $1.91 billion, down from $3.04 billion reported for the same period of last year. Both the VIP gaming operations and mass market gaming operations caused the substantial decrease in revenue generated in the Macau market. The ongoing worries around the political and economic conditions in China may still weigh on Wynn’s stock performance in the near-term future. Meanwhile, the shares of the casino operator are trading at a forward price-to-earnings ratio of 17.90, which is slightly above the average of 17.44 for the S&P 500 Index. 34 hedge funds from our database were invested in the company at the end of the third quarter and owned 19.80% of its outstanding common stock at that time. Ricky Sandler’s Eminence Capital acquired a 1.41 million share-stake in Wynn Resorts Limited (NASDAQ:WYNN) during the quarter.