Charles Schwab Corp (SCHW) and Two Low-Priced Stocks Witness Robust Insider Buying

It is common knowledge that insiders have a greater understanding of their companies and might use that knowledge to time their stock purchases or sales more accurately than any other trader could. During my bachelor studies, I was an intern at one of the largest tobacco companies in the world, so I can firmly confirm that corporate insiders do have a better understanding of what’s going on with their company’s business (they have up-to-date knowledge about industry trends and regulatory changes, they know what the competition is doing, and how consumers respond to different product developments or introductions). Some insider trading watchers and researchers believe that individual investors should focus on the insider trading activity of smaller firms, as outsiders tend to have more knowledge about the businesses and developments of large, highly-scrutinized companies. Hence, the insider purchases registered at small growth companies might represent stronger signals of future performance. The Insider Monkey team identified three companies with recent insider buying, and the following article will take a thorough look at those purchases.

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 (read more 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.

OMNOVA Solutions Inc. (NYSE:OMN) had three different insiders make big purchases this week. To begin with, Director William R. Seelbach purchased 10,000 shares yesterday at a price of $4.85 per share, lifting his stake to 59,523 shares. Anne P. Noonan, President of Performance Chemicals, snapped up 20,000 shares this week at a weighted average cost of $4.78, but was also granted 24,200 shares under the OMNOVA Solutions Inc. Third Amended and Restated 1999 Equity and Performance Incentive Plan. Last but not least, Chief Financial Officer and Senior Vice President Paul F. DeSantis bought 2,000 shares on Wednesday at $4.41 apiece and also received 25,500 shares under the same incentive plan. After the recent transactions, the CFO currently holds an ownership stake of 83,000 shares.

The innovator of emulsion polymers, specialty chemicals, and engineered surfaces serving the commercial, industrial, and residential end markets has seen its shares decline by 30% over the past year. The company’s weak financial performance stands behind the disappointing loss of market value. OMNOVA Solutions Inc. (NYSE:OMN) generated net sales of $638 million during the first nine months of 2015, compared with $744 million reported a year earlier. The decrease was mainly due to reduced pricing, lower volumes, and currency exchange impact. The company’s net income for the first nine months of 2015 came to $1.1 million or $0.02 per diluted share, down from $6.4 million or $0.14 reported for the same period of the prior year. Earlier this week, the company reported its financial results for the fourth quarter of 2015, which were positively received by the market. However, one should wait until OMNOVA’s revenue stabilizes and starts seeing new pockets of growth. The number of smart money investors from our system with stakes in the company climbed to 14 from 12 during the third quarter. Peter Schliemann’s Rutabaga Capital Management owns 639,109 shares of OMNOVA Solutions Inc. (NYSE:OMN) as of the end of the third quarter.

Let’s move on to the next two pages of this daily insider trading article, where we discuss the insider purchases registered at Charles Schwab Corp (NYSE:SCHW) and CASI Pharmaceuticals Inc. (NASDAQ:CASI).

Charles Schwab Corp (NYSE:SCHW) is another company that witnessed insider buying this week. Director William S. Haraf acquired 4,000 shares on Wednesday at prices that ranged from $25.24 per share to $25.60 per share, and currently holds an ownership stake of 13,209 shares. The move comes after the company released its earnings report for the fourth quarter of 2015 earlier this week. The securities broker-dealer reported net income of $416 million for the period, up from $376 million reported for the third quarter of 2015 and $350 million reported for the fourth quarter of 2014. It is also important to note that the company’s clients opened 1.1 million new brokerage accounts in 2015, which denotes an increase of 10% year-over-year. Most importantly, as investors were faced with economic uncertainty due to increased market volatility, they were turning to advice offerings in greater numbers, especially during the third quarter. More than 155,000 accounts enrolled in one of the company’s retail advisory solutions last year, up by 60% year-over-year.

The shares of Charles Schwab have plummeted by nearly 26% since the end of 2015 and are down by 10% over the past year. Nonetheless, the stock trades at a rather expensive forward price-to-earnings ratio of 17.97, despite experiencing a sharp decline in recent weeks, compared to the average of 15.65 for the S&P 500 companies. A total of 48 hedge funds monitored by our team had long positions in the company at the end of September, amassing 8.30% of its outstanding common stock. Stephen Mandel’s Lone Pine Capital reported owning 13.40 million shares of Charles Schwab Corp (NYSE:SCHW) via its 13F for the third quarter.

CASI Pharmaceuticals Inc. (NASDAQ:CASI) had two of its most influential insiders make big purchases this week. Chief Executive Officer Ken Keyong Ren snapped up a new stake of 15,000 shares on Tuesday at prices ranging from $0.71 to $0.74 per share. Moreover, Chief Operating Officer Cynthia W. Hu bought 16,800 shares on the same day at a weighted average cost of $0.72 and currently holds 17,785 units of common stock. The shares of the biopharmaceutical company that mainly focuses on China are down by 57% over the past year. The company’s leading internal drug candidate is ENMD-2076, a selective Aurora A and angiogenic kinase inhibitor for the treatment of cancer. Back in September 2014, CASI Pharmaceuticals acquired exclusive rights in greater China (which includes Taiwan, Hong Kong and Macau) to three in-licensed oncology products from Spectrum Pharmaceuticals. CASI has been working on obtaining marketing approval for ZEVALIN and MAEQIBO, both of which are approved in the United States, in the markets it operates and has already started commercial activities for ZEVALIN in Hong Kong.

CASI reported revenue of $48,000 for the nine months that ended September 30, which was earned from the dosing of ZEVALIN to patients in Hong Kong. A mere four hedge funds tracked by Insider Monkey were invested in the company at the end of the third quarter. Hal Mintz’s Sabby Management LLC holds a 202,536-share stake in CASI Pharmaceuticals Inc. (NASDAQ:CASI) as of September 30.

Disclosure: None