Corporate Insiders Point to Three Stocks Poised to Explode

The Standard & Poor’s 500 Index and the Nasdaq Composite Index closed in the red on Friday, mainly prompted by the slumping biotech stocks (i.e. the Nasdaq Biotech Index lost 6.2%). However, most U.S. equities bounced back during the week’s last trading session, after the Fed Chair, Janet Yellen, suggested a high probability of a rate hike this year. Janet Yellen’s speech on Thursday seems to have assured market participants that the strength of the US economy will most likely allow it to tackle higher interest rates. Frankly speaking, it is hard to find a rationale in the recent swings in stock markets (some market participants find it hard to assess the effects of a potential rate hike). However, some corporate executives have started to show confidence in the prospects of their companies as well by bolstering their holdings. The Insider Monkey team identified notable insider buying activity at Apogee Enterprises Inc. (NASDAQ:APOG), Five Below Inc. (NASDAQ:FIVE), and Tonix Pharmaceuticals Holding Corp. (NASDAQ:TNXP). Therefore, this article will discuss some potential explanations behind insiders’ moves, which might point to some trading opportunities.

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 118% over the ensuing 36 months, outperforming the S&P 500 Index by nearly 61 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.

Let’s kick off our discussion by examining the insider activity at Apogee Enterprises Inc. (NASDAQ:APOG). Joseph F. Puishys, who has acted as Chief Executive Officer and President since 2011, purchased 11,000 shares last Friday at a weighted average price of $46.11 apiece. Hence, the executive enlarged his holding to 238,423 shares valued at $11.07 million, which also includes restricted stock awards. The shares of Apogee have plummeted by nearly 20% since it released its fiscal 2016 second-quarter results on September 16, which suggests that either the executive is buying shares on weakness or he just wants to persuade market participants to stop beating down Apogee’s stock. The company’s revenues increased by 4% year-over-year to $240.8 million, while its earnings per share were up 45% to $0.50. However, the market did not like that Apogee revised down its revenue growth outlook for the full year to 10% from 15%. Donald Chiboucis’ Columbus Circle Investors enlarged its stake in Apogee Enterprises Inc. (NASDAQ:APOG) during the second quarter to roughly 341,000 shares.

Two different insiders at Five Below Inc. (NASDAQ:FIVE) reported acquiring stock last week. Chief Executive Officer and President Joel D. Anderson bought 5,000 shares for $33.53 each earlier this week, bolstering his overall holding to 21,113 shares. Moving on to the next insider, director David M. Mussafer, who has filed a Form 4 indicating that Sunley House Capital Master Limited Partnership, in which he holds a limited partnership interest, acquired 90,000 shares at a price of $33.35 per share. In addition to this indirect ownership stake, the director also owns 2,271 shares directly. Going back to the company itself, Deutsche Bank reduced the price target on Five Below earlier this month to $42 from $44, after the retailer released its latest earnings results (read more details). The stock has not managed to bounce back since then (shares have lost 16% since September 3), so it appears that the CEO is buying shares in the belief that they are undervalued. Jim Simons’ Renaissance Technologies, one of the top shareholders of Five Below Inc. (NASDAQ:FIVE), boosted its stake in the retailer to nearly 567,000 shares during the recent quarter.

Ultimately, Tonix Pharmaceuticals Holding Corp. (NASDAQ:TNXP)’s Chief Executive Officer, Dr. Seth Lederman, added 6,000 shares to the holding that now comprises 71,074 shares. The additional shares were purchased on Friday at $6.5 per unit. It is also worth mentioning that the CEO also owns a few hundred thousand shares indirectly. The stock performance of the clinical-stage pharmaceutical company has been quite volatile this year, but it still managed to deliver a year-to-date return of 6%. The company is currently working on three efficacy studies started during the first half of the year, so current and potential investors in the stock may be looking forward to see some results from these trials. To be more specific on what Tonix’s team is currently working on, these three studies involve next-generation medicines for tension headache, post-traumatic stress disorder, and fibromyalgia. James E. Flynn’s Deerfield Management reported owning 1.32 million shares of Tonix Pharmaceuticals Holding Corp. (NASDAQ:TNXP) through its 13F for the April – June quarter.

Disclosure: None