Eye-Catching Insider Buying Witnessed at Tempur Sealy (TPX) and 2 Other Companies

Most insider trading experts believe there is only one straightforward reason for corporate insiders to purchase shares of their own companies, which is that they anticipate appreciation of those shares in the future. If corporate insiders were allowed to trade shares whenever they wanted without being under the scrutiny of the U.S. Securities and Exchange Commission, they would definitely be the most successful traders out there in the market. Directors and executives possess up-do-date insights about their companies’ current and future developments, which usually explains why insiders’ purchases tend to outperform market gauges. Although they are restricted from trading on material non-public information, these highly-informed individuals do have a better understanding of their companies’ business models, fundamentals, and industry trends, among other things. This knowledge serves as a competitive edge over other players in the stock market such as analysts, top-tier investors, and others. For that reason, retail investors need to monitor insider activity as part of a broader analysis process, a practice that can pay off handsomely over time. The Insider Monkey team analyzed dozens of Form 4 filings submitted on Tuesday and identified three companies with the most noteworthy insider buying activity.

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).

Greif Inc. (NYSE:GEF) had some of its most influential insiders purchase shares this week. To start with, Lawrence A. Hilsheimer, Chief Financial Officer and Executive Vice President, purchased 36,560 Class A shares on Tuesday at a cost of $27.28 per share, lifting his stake to 55,272 units of Class A common stock. The CFO also owns 20,261 Class B shares. Furthermore, President and Chief Executive Officer Peter G. Watson bought 3,664 Class A shares a day earlier at $27.14 apiece, which enlarged his overall holding to 24,641 shares.

Greif Inc. (NYSE:GEF) produces rigid industrial packaging products such as steel, fibre and plastic drums; rigid intermediate bulk containers; closure systems for industrial packaging products; water bottles, and remanufactured industrial containers. The shares of the company have plummeted by 30% over the past 12 months, after having dropped by 11% in 2016 alone. Greif generated total net sales of $771.4 million in the first quarter of fiscal year 2016 that ended January 31, down from $902.3 million reported for the same period of the prior year. The 14.5% decrease in the company’s top-line results was mainly driven by foreign exchange headwinds which impacted net sales by 8.8%, divestitures completed during 2015, as well as by lower selling prices. The management of the industrial packaging products and services company anticipates that the slowing global industrial economy, lower containerboard prices and possible strengthening of the green buck against other currencies will mostly likely continue to put pressure on the company’s financial performance throughout 2016. Shares of Greif are currently trading at 11.1-times expected earnings, slightly above the forward P/E multiple of 10.6 for competitor International Paper Co (NYSE:IP). There were 18 hedge funds in our system with stakes in Greif at the end of December 2015, with them having accumulated 8.40% of its outstanding common stock. Royce & Associates, founded by Chuck Royce, owns nearly 967,000 shares of Greif Inc. (NYSE:GEF) as of December 31.

The next two pages of this article reveal the insider buying activity registered at Tempur Sealy International Inc. (NYSE:TPX) and Energy Recovery Inc. (NASDAQ:ERII).

Tempur Sealy International Inc. (NYSE:TPX) has also witnessed two top executives pile up shares over the past few trading sessions. Richard W. Anderson, Executive Vice President and President of North America, snapped up 9,000 shares on Monday and 8,430 shares on Tuesday at prices that ranged from $56.36 to $57.83 per share. Following the recent transactions, Mr. Anderson currently owns 52,162 shares. Moreover, President and Chief Executive Officer Scott L. Thompson bought 22,911 shares on Friday and 12,089 shares on Monday at prices that fell between $56.69 and $58.49 per share, boosting his equity ownership to 104,686 units of common stock.

Tempur Sealy International, the largest bedding provider in the world, develops and manufactures bedding products under the highly-known TEMPUR, Tempur-Pedic, Sealy, Sealy Posturepedic, and Stearns & Foster brand names. Tempur Sealy’s stock has lost 24% over the past six months or so, presumably because of serious issues with the Danish Tax Authority (SKAT). The mattress manufacturer has received income tax assessments from SKAT, which could result in a significant payment being owed; the cumulative total tax assessment, including interest and penalties, amounts to $199.6 million. Although mattresses were previously seen as invulnerable to the fast-increasing e-commerce space, the commonplace sales practices involving these products has evolved quite significantly lately. Numerous online sellers have started to sell mattresses, which are shipped to the doors of customers in small-sized boxes. Tempur Sealy has not eschewed from capitalizing on this newly-emerged trend, as the company recently announced the debut of a new offering in the e-commerce space, called Cocoon by Sealy.

Tempur Sealy generated net sales of $3.15 billion in 2015, up from $2.99 billion registered in 2014. The company’s 2015 net sales grew by 9.4% year-over-year on a constant currency basis. Meanwhile, Tempur Sealy’s adjusted net income for 2015 totaled $199.9 million or $3.19 per share, up from $164.6 million or $2.65 per share reported for 2014. These figures provide a general picture of the seriousness of the company’s tax issues with SKAT. The stock is priced at 12.9-times expected earnings, slightly above the forward P/E ratio of 10.5 for the Household Appliances industry. James Crichton’s Hitchwood Capital Management reported owning 1.15 million shares of Tempur Sealy International Inc. (NYSE:TPX) in its latest quarterly 13F.

Energy Recovery Inc. (NASDAQ:ERII) had a member of its Board of Directors buy a sizable block of shares last week. Robert Yu Lang Mao, who joined Energy Recovery’s Board in September 2010, purchased 40,000 shares on Friday at prices ranging between $9.34 and $9.49 per share, increasing his direct ownership stake to 97,361 shares. It should be mentioned that the company also had three different Directors unload sizable blocks of shares last week. So why did the aforementioned Director purchase more shares, after the stock has already skyrocketed by 193% over the past 12 months.

The shares of the energy solutions provider to industrial fluid flow markets skyrocketed in October 2015 following the announcement of a 15-year agreement with oilfield company Schlumberger Limited. (NYSE:SLB) to commercialize Energy Recovery’s VorTeq hydraulic pumping system. The VorTeq is an enabling technology for oilfield companies to isolate and preserve hydraulic fracturing pumps by redirecting hostile fracturing fluids away from these critical pumps. As a result, this technology can lower repair and maintenance costs and lead to higher fleet revenue. Some analysts believe that the aforementioned deal is transformative for Energy Recovery, mainly because the deal validates the product, currently in the research and development stage, and boosts the odds of its successful commercialization. The highly-successful agreement involves $125 million in payments to be paid in stages: $75 million upfront, which are amortized over the 15-year agreement period, two separate $25 million payments associated with achieving two milestones, as well as recurring royalty payments as soon as the product starts its commercialization.

The hedge fund sentiment towards Energy Recovery increased significantly in the fourth quarter, as the number of money managers bullish on the stock climbed to 12 from 4 quarter-over-quarter. Brandon Osten’s Venator Capital Management added a 469,592-share position in Energy Recovery Inc. (NASDAQ:ERII) to its portfolio during the December quarter.

Disclosure: None