The healthcare sector continues to drag down U.S stock indexes, being pressured by criticism over drug prices and fears that regulation could be enacted which would put a ceiling on prices. The Standard and Poor’s 500 Index lost 11.83 points or 0.6% on Wednesday, while the Dow Jones Industrial Average declined by 48.50 points. All major U.S indexes closed in the red for the second-straight trading session, but this should not serve as a major reason for concern just yet. It is quite evident that the ongoing earnings season and global macroeconomic developments guide and drive the equity markets at the moment. Moving on to the primary goal of this article, those who seek attractive buying opportunities should consider examining the recent insider buying activity uncovered at several companies. At the end of the day, it is highly unlikely that a corporate insider would buy shares believing that they will depreciate in the upcoming months and years. Having this in mind, the Insider Monkey team identified three companies that had strong insider buying activity recently, and this article will closely inspect each move made by these companies’ insiders.
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 three-plus 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.
Let’s being our discussion by scrutinizing the insider trading activity at Wynn Resorts Limited (NASDAQ:WYNN). Director Ray R. Irani acquired 40,000 shares earlier this week at prices ranging from $67.94-to-$68.00. After this week’s acquisitions, the Director holds 46,951 shares. Just recently, the operator of high-end hotels and casinos released its third quarter earnings report, revealing that its revenues decreased by 37% year-over-year to $996.3 million. This decline is mainly attributed to the weakness in its Macau operations, which is most likely to continue in the months ahead. The Chinese government has disclosed its intentions to limit the compound annual growth of the number of gaming tables in casinos to 3% until 2022, which will strongly impact the business environment Wynn Resorts Limited (NASDAQ:WYNN) operates in. The shares of the company have lost more than 56% since the beginning of the year, so there is no doubt that the Director is buying shares believing they are cheap. Mason Hawkins’ Southeastern Asset Management was the largest equity holder of Wynn Resorts Limited (NASDAQ:WYNN) within our database at the end of the second quarter, with 7.11 million shares.
The next page of the article will examine the insider buying activity at two low-priced stocks.