ConocoPhillips (COP) And Other Struggling Companies Witness Insider Buying Activity

All major U.S. indexes closed in the red on Thursday, as market participants digest the Federal Reserve’s decision to raise interest rates. Investors positively greeted this historical decision on Wednesday, as it was followed by a rally in equites on that day. Meanwhile, the depressed crude oil prices and the massive sell-off in junk bonds have put some weight on U.S. equities lately. Insider trading watchers might have easily noticed that the energy industry has been registering higher-than-usual insider buying, which could somewhat suggest that energy-related equities are in a bottoming-out phase at the moment. Numerous investors and analysts have different opinions on future crude oil prices and on companies’ ability to endure the current low commodity price environment, but corporate insiders are the ones who have a better understanding of their companies’ prospects, liquidity problems and other short- and long-term developments. This applies to all industries and companies one can think of, and that’s one of the key reasons Insider Monkey closely monitors insider trading activity. With that in mind, this article will discuss noteworthy insider buys reported at three US-listed companies, including one energy company, and the recent performance of those companies.

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 102% over the ensuing 38 months, outperforming the S&P 500 Index by more than 53 percentage points (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.

New Mountain Finance Corp. (NYSE:NMFC) has registered an unusual volume of insider buying this week, as six different insiders bought shares on Monday through Thursday. Nonetheless, we will reveal the most noteworthy insider buys only. To start with, Chairman Steven B. Klinsky purchased 222,313 shares this week at a weighted average price of $13.03, boosting his holding to nearly 3.84 million shares. Director David R. Malpass snapped up a block of 30,000 shares at prices that ranged from $12.17 to $12.93 and currently holds 161,411 shares. Last but not least, President and Chief Executive Officer Robert A. Hamwee bought 25,000 shares on the same day at a weighted average price of $12.35, lifting his stake to 212,459 shares. The business development company mainly invests in debt securities at all levels of the capital structure, which include first and second lien debt, notes, bonds and mezzanine securities. Shares of New Mountain Finance Corp. (NYSE:NMFC) plummeted in early-December, presumably because of the sharp sell-off in junk bonds. First and second lien debt is mainly rated below investment grade, and these debt investments are widely-known as junk debt investments. The stock is down by 12% for the year and trades at a rather cheap forward price-to-earnings ratio of 9.19, which is below the average of 17.35 for the S&P 500 Index. Robert B. Gillam’s McKinkey Capital Management owns 113,193 shares in New Mountain Finance Corp. (NYSE:NMFC) as of September 30.

Let’s head to the second page of this insider trading article, which reveals the noteworthy insider buys reported at Park-Ohio Holdings Corp. (NASDAQ:PKOH) and ConocoPhillips (NYSE:COP).

Park-Ohio Holdings Corp. (NASDAQ:PKOH) saw two different insiders make purchases this week. Chairman and Chief Executive Officer Edward F. Crawford bought 24,500 shares at prices in the range of $34.15 to $35.68 per share and currently owns 1.45 million shares. Director John D. Grampa acquired a new stake of 2,000 shares on Wednesday at $35.59 apiece. The shares of the industrial supply chain logistics and diversified manufacturing company are 45% in the red year-to-date and trade at very appealing trailing and forward P/E ratios. The company has a trailing P/E of 9.10, which is substantially below the mean of 22.73 for the S&P 500 Index, and a forward P/E of 7.41. Park-Ohio reported net sales of $1.12 billion for the first nine months of 2015, up by $110.7 million as compared to the same period of 2014. This top-line growth was mainly achieved as a result of additional sales from acquisitions and an increase in organic volume sales. However, the company’s Supply Technologies business (offers customers solutions that manage the efficiency of supplying production parts and materials from planning to program implementation), which accounts for 40% of revenues, saw revenues increase by 6% year-over-year to $444.7 million. This growth was mainly attributable to strong demand in the heavy-duty truck market, the power sports and recreational equipment market, the semiconductor market, the consumer electronics and automotive markets. Jim Simons’ Renaissance Technologies reported owning 174,100 shares in Park-Ohio Holdings Corp. (NASDAQ:PKOH) through its 13F filing for the third quarter.

Last but not least, we will investigate the insider buying activity at ConocoPhillips (NYSE:COP). Director Arjun N. Murti purchased a 5,000-share stake on Wednesday for $49.9 each. Arjun Murti has also worked as a sell-side equity research analyst responsible for the energy sector at Goldman Sachs, so there is no doubt that he has a better understanding about ConocoPhillips’ future potential and short-term challenges. The independent exploration and production company has had a rough year in terms of stock performance, as its shares declined 31% year-to-date. The increased supply of crude oil and lower anticipated demand growth have pushed crude oil and natural gas prices significantly lower this, affecting the company’s financial and operational performance. ConocoPhillips aims at achieving cash flow neutrality in 2017, and has been taking serious steps towards achieving this goal. The company targets a $1 billion reduction in operating costs as compared with 2014. In August, Moody’s Investors Service downgraded the company’s senior long-term debt ratings to ‘A2’ from ‘A1’, and is currently reviewing the company’s debt for possible downgrades. Nonetheless, even if the company’s credit rating was lowered one level from its ‘A’ rating, ConocoPhillips would not be required to post additional collateral in the form of cash or letter of credit to counterparties. At the same time, the company does not have rating triggers to any of its corporate debt that could result in automatic default. Donald Yacktman‘s Yacktman Asset Management cut its position in ConocoPhillips (NYSE:COP) by 3% during the July-September period to 5.72 million shares.

Disclosure: None