These Companies’ Insiders Don’t Fear Fed Tightening; Should One Follow Their Lead?

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All major U.S. stock indexes closed in the red on Wednesday, being dragged down by the falling energy equities. It might seem shocking to most of us how quickly stock market sentiment switches around. Most market participants have started to worry about a highly-probable rate hike this year, and its effects on the U.S. economy and stock markets in particular, but one should bear in mind that it may take quite some time until higher interest rates will make other asset classes’ returns attractive enough to propel investors to pull out their money from equities. Meanwhile, some companies have seen their insiders piling up more shares, which could somewhat suggest that these companies are prone to having a great future ahead. Even though the Securities and Exchange Commission was closed for Veterans Day on Wednesday and no filings were published, we will still analyze the insider buying activity of several companies that saw their insiders submit Form 4 filings on Monday and Tuesday.


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 37 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.

SciQuest Inc. (NASDAQ:SQI) has seen its top executive acquire more shares over the past several days. Stephen J. Wiehe, Chief Executive Officer and President since February 2001, reported purchasing 1,600 shares last Friday and 15,400 shares on Monday at prices in the range of $11.86-to-$12.1 per share, boosting his overall holdings to 635,603 shares. The provider of cloud-based business automation solutions for spend management released a strong third-quarter earnings report in late-October, which has positively impacted the company’s stock performance. SciQuest Inc. (NASDAQ:SQI) reported non-GAAP diluted net income per share of $0.08 on revenues of $26.3 million, compared with diluted net income per share of $0.07 on revenues of $25.9 million posted last year. Even so, the stock is still 15% in the red year-to-date, so the CEO’s bullishness might suggest his confidence in the company’s future prospects. The number of hedge funds monitored by Insider Monkey with positions in the company climbed to 13 from 11 during the second quarter, amassing approximately 15.30% of its outstanding shares on June 30. Robert G. Moses’ RGM Capital was the top equity holder of SciQuest Inc. (NASDAQ:SQI) within our database at the end of the second quarter, holding 2.45 million shares.

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Let’s head to the next page of the article, where the insider buying activity at Men’s Wearhouse Inc. (NYSE:MW) and Continental Building Products Inc. (NYSE:CBPX) is disclosed and discussed.

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