Bank of America (BAC), Royal Caribbean (RCL), and Southwest Airlines (LUV) Among 5 Companies With Intense Insider Trading Activity

Numerous research papers studying insider trading behavior conclude that companies in which corporate insiders have bought shares tend to outperform stock market benchmarks. For instance, a research study showed that insider purchases generate abnormal returns of more than 50 basis points per month by constructing a so-called “purchase portfolio” that holds all shares purchased by insiders for a six-month period.

More importantly, past research finds that the intensity of insiders’ purchases over certain periods can point to attractive investment opportunities. This essentially means that intense insider buying can be used as a buying signal. In other words, retail investors tracking insider trading metrics should mostly focus on identifying clusters of insider buying, as there is strong evidence suggesting that corporate insiders have a good feel for near-term developments within their firms and their respective industries. Without further ado, let’s discuss several noteworthy insider purchases and sales reported with the SEC on Wednesday.

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).

Cruise Operator’s CEO Piles Up Shares After Lowering Profit Guidance

According to our insider trading database, Royal Caribbean Cruises Ltd (NYSE:RCL) did not have any insider buying activity since mid-2014, until this week. Chairman and Chief Executive Officer Richard D. Fain snapped up 29,190 shares on Wednesday at prices ranging from a low of $67.05 to a high of $69.63 per share. After the purchase, Mr. Fain currently owns a direct ownership stake of 1.07 million shares.

The global cruise company has lost 32% of its market value since the beginning of the year. The recent insider buying comes shortly after Royal Caribbean Cruises Ltd (NYSE:RCL) lowered its full-year earnings outlook amid higher fuel prices and foreign exchange headwinds. Precisely, the cruise operator lowered its earnings per share forecast to $6.00-to-$6.10 from the previous projection of $6.15-to-$6.35. The cut mainly reflects an adjustment related to the depreciation of the pound after the United Kingdom decided to leave the European Union. The company’s second quarter top-line rose by 2.3% year-over-year to $2.11 billion. Connecticut-based Columbus Circle Investors trimmed its position in Royal Caribbean Cruises Ltd (NYSE:RCL) by 27% during the June quarter, to 1.38 million shares.

The second page of the article will list two companies that recently witnessed noteworthy insider buying, while the final page of the article will disclose two companies with recent notable insider selling activity.

The CEO of This Low-Fare Carrier Buys Shares Amid ‘No Confidence’ Vote from Employees

Southwest Airlines Co (NYSE:LUV) also saw its most influential executive pile up some shares earlier this week. Gary C. Kelly, Chairman of the Board, President and CEO, reported the purchase of 28,106 shares on Tuesday at prices that fell between $35.55 and $35.60 per share, all of which are held in a family trust for Mr. Kelly and his descendants. The family trust currently holds 69,891 shares. Mr. Kelly also holds a direct ownership stake of 505,119 shares.

The insider buying comes a few days after the Southwest Airlines Pilots’ Association voted unanimously to issue a vote of no confidence in Mr. Kelly, saying that “we can no longer sit idly by and watch poor decision after poor decision deeply affect our customers and Southwest Airlines.” The union, which represents approximately 8,000 pilots, also requested that Chief Operating Officer Mike Van de Ven step down from his role at the company. Southwest Airlines Co (NYSE:LUV) has seen the value of its stock plunge by 16% since the start of 2016. Matthew Barrett’s Glendon Capital Management owns 191,128 shares of Southwest Airlines Co (NYSE:LUV) as of the end of June.

Noteworthy Insider Buying at Bank of America Despite Depressed Interest Rate Outlook

Bank of America Corp (NYSE:BAC) was yet another company that had noteworthy insider buying this week. Board member Thomas D. Woods snatched up 25,000 shares on Tuesday at a price tag of $14.13 each, boosting his overall holding to 32,459 shares.

Numerous analysts recommend investors reduce their exposure to banking stocks until the interest rate outlook improves significantly. As top-tier U.S. banks like Bank of America Corp (NYSE:BAC) are currently facing top-line challenges, they need to implement more cost-cutting efforts to improve profitability. Bank of America anticipates full-year 2016 expenses of $53 billion, down from approximately $58 billion in 2015 as the second-largest bank in the U.S. by assets attempts to counter the persistently low interest rates. Bank of America recently increased its quarterly dividend to $0.075 from $0.05 per share, as well as revealed plans to repurchase up to $5 billion worth of shares over the next four quarters. Bank of America shares are 13% in the red in 2016. Ken Fisher’s Fisher Asset Management reported ownership of 43.26 million shares of Bank of America Corp (NYSE:BAC) as of June 30.

Let’s head to the final page of this article where we’ll discuss the fresh insider selling registered at two companies.

Top Executive of London-Based Aon Offloads Shares

Aon plc (NYSE:AON) is one of the two companies that registered striking insider selling over the past several trading sessions. Stephen P. McGill, Group President of Aon and CEO of the Risk Solutions business segment, discarded 46,698 Class A ordinary shares on Tuesday at prices ranging between $107.78 and $108.70 per share. Following the recent sale, Mr. McGill currently owns 252,071 Class A ordinary shares.

The shares of the London-based provider of risk management, insurance and reinsurance brokerage have gained 19% since the start of the year. Aon plc (NYSE:AON)’s second quarter revenue decreased by $39 million year-over-year to $2.8 billion, reflecting a 2% unfavorable impact from foreign currency exchange rates and a 2% decrease in commissions and fees related to net divestitures. These effects were partially offset by organic revenue growth of 3%. The company’s HR Solutions segment was hit by price compression in its benefits administration business, while its Risk Solutions segment was impacted by foreign currency exchange rates and a negative market impact in its Reinsurance business. Jonathan Bloomberg’s BloombergSen acquired a new stake of 535,905 shares of Aon plc (NYSE:AON) during the second quarter.

This Diversified Global Manufacturer’s CEO Discards Some Shares

The man in charge of Dover Corp (NYSE:DOV) also recently filed to report the sale of a sizable block of shares. President and CEO Robert A. Livingston jettisoned 25,927 shares on Tuesday at prices between $68.92 and $69.77 per share. Mr. Livingston currently holds a direct ownership stake of 192,630 shares.

Dover Corp (NYSE:DOV) operates as a diversified global manufacturer that offers equipment and components, specialty systems and support services through four major operating segments: Energy, Engineered Systems, Fluids, and Refrigeration & Food Equipment. In early-July, the company agreed to acquire Wayne Fueling Systems for $780 million in cash. The soon-to-be-acquired company manufactures fuel pumps, as well as retail technology such as point-of-sale systems for fuel stations. The deal is anticipated to close in the second-half of 2016. Dover’s second quarter revenue decreased by 4.1% year-over-year to $1.7 billion, mainly reflecting continued weakness in its U.S. oil and gas-related end markets. Dover shares are up by 15% year-to-date. Ken Griffin’s Citadel Advisors had nearly 945,000 shares of Dover Corp (NYSE:DOV) in its portfolio at the end of March.

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