There was a threefold increase in both insider buying and selling activity last week, as trading windows for more and more insiders open after earnings releases. At the same time, last week’s ratio of insider selling over insider buying remained quite high, with insiders selling at least nine times more worth of stock than buying. According to fresh data revealed by the U.S. Department of Labor on Friday, U.S. employers added 151,000 jobs in January, after adding more than 250,000 for the previous three consecutive months. Some tend to question the strength of the U.S. economy following the freshly-revealed data, but it should still be remembered that companies tend to hire more ahead of winter holidays to tackle increased activity and demand. Hence, the recent jobs report is not as disappointing as many think it is, considering the challenging environment in the energy sector. Leaving macro data aside, the following article will discuss recent insider purchases reported by three companies’ insiders, which could point to some attractive long term bets.
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 (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 begin our investigation by exploring the insider trading behavior at United Bankshares Inc. (NASDAQ:UBSI). Director Peter A. Converse purchased 19,700 shares on Thursday at a weighted average cost of $33.99 and currently holds a direct ownership stake of 618,882 shares. J. Paul McNamara, another member of the company’s Board of Directors, snapped up 1,000 shares two days earlier at a price of $33.19 per share, all of which are held through a direct individual retirement account (IRA). After the recent purchase, the Director holds 1,329 shares through the direct IRA, along with an additional direct ownership stake of 55,540 shares. Financial stocks are performing worse than energy-related stocks so far in 2016, due to increasing worries about the state of the global economy, and United Bankshares Inc. (NASDAQ:UBSI) is no exception. The shares of the bank holding company have lost 8% year-to-date and are down 5% over the past 12-month period. But did this plunge make the stock more attractive to investors? Several valuation metrics suggest that United Bankshares is not an attractive investment in the financial sector. For instance, the stock trades at a forward price-to-earnings ratio of 15.72, which compares with the ratio of 10.7 for the Regional Banks industry. Just recently, the company reported earnings for 2015 of $138.0 million or $1.98 per diluted share, up from $129.9 million or $1.92 per diluted share for 2014. So it quite evident that the bottom-line growth achieved last year would not justify a high valuation. Matthew Lindenbaum’s Basswood Capital was among the seven hedge funds tracked by Insider Monkey that had stakes in United Bankshares Inc. (NASDAQ:UBSI) at the end of the third quarter, holding 180,165 shares, according to its last 13F filing.