Tracking insider trading activity might serve as an additional tool of analysis for both short- and long-term investors. Generally, company insiders have deeper and more up-to-date knowledge on their company’s sales, earnings, and future outlook, among other things. It is common knowledge that no one invests to lose money, and corporate insiders are no exception. As one of the greatest investors of all time, Peter Lynch, said: “Insiders might sell their shares for any number of reasons, but they buy them for only one: they think the price will rise”. Therefore, insider buying might indicate that a stock will be appreciating in the near future. In the following article we will be discussing three companies that had a large volume of insider purchases on Wednesday, those companies being STAG Industrial Inc. (NYSE:STAG), PolyOne Corporation (NYSE:POL), and Computer Task Group Inc. (NASDAQ:CTG).
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 123% over the ensuing 34 months, outperforming the S&P 500 Index by nearly 67 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 by taking a look at the insider buying activity at STAG Industrial Inc. (NYSE:STAG). Three purchases have been made by three different corporate insiders since the beginning of the current week. Francis X. Jacoby, an Independent Director at STAG Industrial, acquired 2,600 shares at a price of $18.97 each on July 28. In the meantime, Geoffrey G. Jervis, who currently acts as Chief Financial Officer, Executive Vice President and Treasurer at the company, purchased 5,000 shares for $18.60 each. Lastly, Jeffrey M. Sullivan, who serves as an Executive Vice President, General Counsel and Secretary at STAG, acquired 5,300 shares at $18.83 per share. It’s not hard to see why corporate insiders have been stacking shares of this company lately, as the shares of the real estate investment trust have dropped by over 20% year-to-date. Moreover, the second quarter was marked by continued progress on all operational fronts for the company, though it seems that the market failed to appreciate this progress. STAG Industrial posted revenue of $52.8 million, up by 27% year-over-yearm, while the net loss for the second quarter of this year came in at $5.2 million, partly caused by a loss on impairment of $2.6 million, compared to a net loss of $2.7 million reported in the same quarter a year ago. Within our database, Alan Reid’s Forward Management is the largest investor in STAG Industrial Inc. (NYSE:STAG), with 1.84 million shares.
