There are very few strategies that work when markets are highly volatile, as they are currently. Tracking insider activity is one of those strategies, which according to studies done in the past, has always yielded positive returns, irrespective of the market conditions. No one wants to invest their hard-earned money in the markets unless they are convinced that such investments will yield good, if not terrific returns. Insiders are no different, and with the kind of information they have access to, when they start buying shares of their companies in a falling market it mostly means they are convinced that the fall is temporary and their shares will soon rise in value. In this article we are going to discuss three companies of which insiders have recently bought shares; they are Civeo Corporation (Canada) (NYSE:CVEO), Learning Tree International, Inc. (OTCMKTS:LTRE), and Violin Memory Inc (NYSE:VMEM).
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 118% over the ensuing 36 months, outperforming the S&P 500 Index by over 60 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 begin with Civeo Corporation (Canada) (NYSE:CVEO), which had two of its officers buying shares of it on September 9. Frank Steininger, who serves as the company’s Senior Vice President, Chief Financial Officer, and Treasurer, bought 40,000 shares at a weighted average price of $1.89, while Bradley J. Dodson, who serves as the Chief Executive Officer and President of the company, bought 50,000 shares at a weighted average price of $1.83. Following these transactions, Mr. Steininger now owns 169,274 shares and Mr. Dodson owns 701,476 shares of Civeo Corporation (Canada) (NYSE:CVEO). Since last year, the concerns regarding the liquidity of the company have taken a heavy toll on its stock, which is evident from the immense plus-90% drop it has had from its 52-week highs. Although most of the analysts continue to remain negative on the stock, Israel Englander‘s Millennium Management upped its stake in the company by 504% to almost 4.6 million shares during the second quarter.
Proceeding ahead, Lloyd Miller III, a large shareholder of penny stock Learning Tree International, Inc. (OTCMKTS:LTRE), acquired 17,000 shares of the company on September 9 at a weighted average price of $0.93 per share and now indirectly owns over 1.37 million shares. Learning Tree International, Inc. (OTCMKTS:LTRE) has had a consistent downward journey over the past five years, losing 90% of its market cap, and is down by 44.5% this year alone. Due to those steep declines, the shares of the company were delisted from the NASDAQ on July 22 and started trading under the same symbol on OTCQX US Market. With a purchase of 11,974 shares, Ken Griffin‘s Citadel Investment Group was the only hedge fund among those we track that initiated a stake in the company during the April-June period.
Violin Memory Inc (NYSE:VMEM) was another stock that witnessed buying from multiple insiders on September 9. Said Ouissal, who serves as the Senior Vice President of Worldwide Field Operations at the company, bought 10,000 shares at a weighted average price of $1.48. Likewise, David B Walrod, an Independent Director of the company acquired 35,000 shares at a weighted average price of $1.49, and Georges Antoun, another Independent Director of the company, purchased 66,000 shares at a weighted average price of $1.48. Following these transactions, Mr. Ouissal now owns 71,663 shares directly, Mr. Walrod owns 173,420 shares directly and 169,883 shares indirectly, and Mr. Antoun owns 98,000 shares of Violin Memory. Just like the other two companies discussed previously, shares of Violin Memory Inc (NYSE:VMEM) have also fallen significantly in 2015, trading down by 68% year-to-date. On August 28, analysts at Deutsche Bank reiterated their ‘Hold’ rating on the stock, while lowering their price target to $2.25 from $3. Billionaire David E. Shaw‘s firm D.E. Shaw reduced its stake in the company by 80% during the April-June period to a paltry 23,683 shares.
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