The Standard and Poor’s 500 Index inched up by 1.6% over the last week. The index closed above its 50-day moving average for the first time in 2016 on Thursday, which was seen as a bullish signal among technically-oriented investors. Meanwhile, last week’s volume of insider buying decreased by approximately 71%, whereas the volume of insider selling increased by more than 10% sequentially. As a result, last week’s ratio of insider selling to insider buying surged relative to the week before, which is not extremely surprising given the high uncertainty and volatility in equity markets, and the recent rally in U.S. equities. Even though the insider buying activity dropped significantly last week, there were a few companies that witnessed sizable insider purchases. The Insider Monkey team analyzed dozens of Form 4 filings submitted with the SEC on Friday and identified three companies with notable acquisitions.
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).
CARBO Ceramics Inc. (NYSE:CRR) has seen one of its most influential insiders gradually pile more shares over the past several weeks. Chairman William C. Morris bought 37,900 shares last week at prices that ranged from $16.46 to $18.23 per share and lifted his overall holding to 3.05 million shares. The Chairman acquired an additional 75,900 shares during the prior week at prices that fell between $14.72 and $18.67 per share. The oilfield services technology company has seen its shares decline by 49% over the past 12 months. Nonetheless, the stock appears to be in a bottoming out phase since late October and has gained 6% since the beginning of 2016. CARBO Ceramics Inc. (NYSE:CRR)’s business involves manufacturing and selling proppant products for use in the hydraulic fracturing of oil and natural gas wells. The company’s 2015 revenues dropped $368.8 million or 57% year-on-year to $279.57 million. The decrease was mainly due to a 48% reduction in the average North American rig count, which affected both proppant sales volumes and average selling prices. CARBO Ceramics has undergone a number of actions to lower its cost structure, which include workforce reductions, production output cuts, capital expenditures reductions and dividend suspension. Meanwhile, the company had $78.87 million in cash and cash equivalents on December 31, while its outstanding debt totaled only $88.0 million. The number of hedge funds from our system with stakes in CARBO increased to 11 from seven during the fourth quarter of 2015, with these funds amassing 9.70% of the company’s total outstanding shares. Steven Cohen’s Point72 Asset Management acquired a new stake of 287,300 shares in CARBO Ceramics Inc. (NYSE:CRR) during the December quarter.
Clearwater Paper Corp (NYSE:CLW) had not registered any insider buying for quite some time until last week. John D. Hertz, Senior Vice President and Chief Financial Officer since 2012, snapped up 5,180 shares on Thursday at prices ranging from $38.19 to $38.69 per share and currently owns 39,299 shares. The shares of the producer of private label tissue and premium bleached paperboard products are down 36% over the past 52 weeks, after having dropped 12% year-to-date. The company operates through two reporting segments: the Consumer Products segment (accounted for 55% of 2015 net sales), which manufactures and markets at-home tissue products in various tissue categories; and the Pulp and Paperboard segment, which manufactures and sells bleached paperboard for the high-end segment of the packaging industry. Clearwater’s net sales totaled $1.75 billion in 2015, down by 10.9% year-on-year, mainly due to lower non-retail tissue shipments as a result of the sale of its specialty business and mills in December 2014. The decrease in sales of tissue converted product cases and lower prices for commodity grade paperboard also impacted the company’s financial performance. Nonetheless, Clearwater Paper appears to be undervalued relative to the broader market at the moment. The stock is priced at 8.16 times expected earnings, below the average forward P/E multiple of 9.9 for the Paper Products industry and the 16.15 for the S&P 500. There were 14 hedge funds tracked by Insider Monkey with stakes in the company at the end of December, which accumulated nearly 6% of its outstanding common stock. Israel Englander’s Millennium Management added a 195,122-share position in Clearwater Paper Corp (NYSE:CLW) to its portfolio during the October-to-December period.
KapStone Paper and Packaging Corp. (NYSE:KS) is another player in the Paper and Products industry that witnessed insider buying last week. Director Robert J. Bahash purchased 20,000 shares on Thursday at prices in the range of $9.10 to $9.30 per share and increased his overall holding to 26,905 shares. The producer of containerboard and kraft paper has seen its stock decline by 71% over the past year. In June 2015, KapStone acquired 100% of partnership interests in distributor of packaging materials Victory Packaging L.P. and its subsidiaries for $615.0 million cash and $2.0 million of working capital adjustments. KapStone’s consolidated net sales for 2015 totaled $2.80 billion, up from $2.30 billion reported for 2014. However, the increase was mainly attributable to the Victory acquisition, which accounted for $582.9 million of net sales. Meanwhile, the company’s net income decreased to $106.4 million or $1.09 per diluted share in 2015 from $171.9 million or $1.76 per share a year earlier. The bottom-line results were mainly impacted by lower containerboard and extensible kraft paper prices, stronger U.S. dollar, lower sales volume, and a 12-day strike at one of its paper mills. Earlier this month, analysts at Deutsche Bank downgraded the stock to ‘Hold’ from ‘Buy’ and slashed the price target to $14 from $22, after the company had released its fourth-quarter earnings report. Nevertheless, the shares of KapStone are currently trading at 7.07 times expected earnings, substantially below the forward P/E multiple for the Paper Products industry. The hedge fund sentiment towards the stock was negative in the fourth quarter, as the number of money managers with stakes in the company dropped to 14 from 24 quarter-on-quarter. D.E. Shaw, founded by David E. Shaw, reported owning 2.35 million shares of KapStone Paper and Packaging Corp. (NYSE:KS) through its latest 13F.