What Do Insiders Have to Say About These 3 Companies?

The third quarter earnings season is just about to call it a day, so the insider trading activity has been intensifying over the past few days. Most market participants associate insider trading with illegal conduct, but this term essentially involves both legal and illegal conduct. A few would disagree that corporate insiders usually have a better understanding of their companies’ business and future prospects than non-insiders. Of course, insiders are not allowed to trade on material non-public information, but they still have their own perception about their companies’ future prospects. In fact, their perception may turn out to be quite accurate, which could in turn offer great insights about their companies’ future outlook. Moving on to what this article is all about, the Insider Monkey team identified three companies with relatively high insider buying activity. So let’s proceed with our discussion on these three companies’ insider trades.

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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 more than 102% over the ensuing 3 years, outperforming the S&P 500 Index by more than 53 percentage points (read the 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.

We will start off our discussion by investigating the insider buying activity at CONSOL Energy Inc. (NYSE:CNX), an integrated energy company that has seen its stock plummet 80% since the beginning of the year. Director Alvin R. Carpenter acquired 10,000 shares on Thursday at a weighted average price of $7.04. After this recent transaction, the Director owns 89,591 shares, 4,550 of which are restricted stock units. Last week, U.S. natural gas prices reached their lowest level in the past three years or so, owing to the growing expectations of a rarely warm winter. CONSOL Energy Inc. (NYSE:CNX) has been among the worst performers within the S&P 500, but it seems that the downside is quite limited at the moment. Therefore, it might be the case that the Director acquired the 10,000-share block believing in the future strong performance of the company and its industry in general. Mason Hawkins’ Southeastern Asset Management was the top shareholder of CONSOL Energy Inc. (NYSE:CNX) within our database at the end of the June quarter, owning 44.75 million shares.

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Let’s head to the next page of the article, where we discuss the insider buying activity at two banks.