Harris & Harris Group Inc. (TINY), Hallador Energy Co (HNRG) and OFG Bancorp (OFG) Register Mild Insider Buying

One metric commonly used to examine investing ideas is insider buying. Executives, directors, and employees of companies usually have a better understanding of their company’s current developments and future prospects, which serves as the most straightforward explanation as for why insider purchases tend to outperform broader market benchmarks. Corporate insiders have up-to-date insights about upcoming products, ongoing marketing campaigns, and supply/demand trends, so these individuals have much more reliable and useful data than analysts. It is believed that insider buying at small companies is especially informative given that those companies generally have a limited amount of research coverage on them. This feature creates great buying opportunities for corporate insiders, as well as non-insiders tracking insider trading activity. With that in mind, the following article will discuss the insider trading activity witnessed at three small-cap companies.

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).

Let’s begin our discussion with Harris & Harris Group Inc. (NASDAQ:TINY), which saw its entire Board of Directors, save for the Executive Chairman, purchase shares in March. According to a Form 4 filing submitted with the SEC on Monday, Director W. Dillaway Ayres Jr. bought 3,358 shares on March 18 for $1.91 per share, boosting his overall holding to 62,446 shares. Moreover, Director Stacy R. Brandom snapped up 3,515 shares on the same day for $1.91 each, which lifted her stake to 24,199 shares. Charles E. Ramsey, a member of the company’s Board of Directors since 2002, purchased 3,200 shares at $1.91 apiece a little more than two weeks ago, increasing his ownership to 98,302 shares. 4,666 shares were acquired by Lead Independent Director Richard P. Shanley, who currently owns 77,229 shares. Last but not least, Director Phillip A. Bauman bought 2,861 units of common stock on March 18 at a price of $1.91 per share, increasing his holding to 78,839 units.

Harris & Harris Group Inc. (NASDAQ:TINY) is a publicly-traded venture capital firm that operates as a business development company (BDC). The BDC primarily focuses on BIOLOGY+ companies, which represent interdisciplinary life sciences companies where biology innovation is interconnecting with innovations in various areas such as electronics, physics, materials science, and chemistry, to name just a few. Harris & Harris Group believes that the return potential of its portfolio primarily relies on the following non-precision health and precision medicine companies: D-Wave Systems Inc., a leader in the development, fabrication, and integration of superconducting quantum computers; HZO Inc., which designs technology solutions that make electronics waterproof and resistant to corrosion; and AgBiome LLC, a biotechnology company that uses new knowledge of the plant-associated microbiome to create innovative products for agriculture. 20 of the 26 companies included in the BDC’s portfolio generate revenue from commercial sales of products and services, commercial partnerships or government grants. The companies’ aggregate revenue for 2015 totaled $238.7 million, down from $264.7 million reported for 2014.

Harris & Harris Group’s share price of $1.66 is significantly below its net asset value per share of $2.88 as of the end of December, which might have triggered the wave of insider buying. Shares of Harris & Harris Group are down by 48% in the past 12 months. There were a mere four hedge funds in our system with stakes in the BDC on December 31, with them having amassed nearly 12% of its outstanding shares. John W. Rogers’ Ariel Investments owns 3.51 million shares of Harris & Harris Group Inc. (NASDAQ:TINY) as of the end of 2015.

The next page of this insider trading article discusses the insider buying activity witnessed at Hallador Energy Co (NASDAQ:HNRG) and OFG Bancorp (NYSE:OFG).

Hallador Energy Co (NASDAQ:HNRG) saw its top executives purchase shares over the past several days. To start with, Victor P. Stabio, Chairman of the company’s Board of Directors, purchased 3,000 shares on Friday at $4.43 apiece, increasing his overall ownership stake to 292,887 shares. Mr. Stabio owns 39,180 shares through the Stabio Family Trust and 253,707 shares individually. Moreover, President and Chief Executive Officer Brent K. Bilsland acquired 6,000 shares on Friday and Monday, all of which are owned by Mr. Bilsland’s three children. The Form 4 filing shows that each of Mr. Bilsland’s children own exactly 16,480 shares. As revealed in previous filings, the CEO also holds a direct ownership stake of 609,251 shares.

Hallador Energy represents a microcap Indiana-based coal producer that has seen its shares decline by 63% in the past year. The largest share of the company’s business is focused on coal mining in the State of Indiana through Sunrise Coal LLC, a wholly-owned subsidiary that serves the electric power generation industry. More than 80% of the company’s coal sales were associated with customers that have large coal-fired power plants in the State of Indiana, so the company has a competitive edge over rivals with respect to those customers, given that Hallador Energy’s mines and coal reserves are located in close proximity to its primary customers (which reduces transportation costs). Hallador Energy sold 7.45 million tons in 2015 at an average price of $45.59 per ton, compared to 5.40 million tons at an average price of $43.33 per ton in 2014. Nonetheless, concerns over high coal inventories and low natural gas prices have put significant weight on the company’s shares in recent quarters. Hallador Energy expects to generate $40 million of free cash flow in 2016, which will most likely be used to strengthen the company’s balance sheet. Nonetheless, it is important to note that this figure represents only 55% of the company’s overall capacity, so Hallador might represent a great buying opportunity should the market recover. The number of money managers in our system with stakes in the coal producer declined to six from nine during the fourth quarter. Jeffrey Bronchick’s Cove Street Capital had 323,582 shares of Hallador Energy Co (NASDAQ:HNRG) at the end of 2015.

Last but not least, OFG Bancorp (NYSE:OFG) had one member of its Board of Directors buy shares this past week. Director Rafael F. Martinez-Margarida purchased 7,000 shares on Friday at $6.99 apiece, boosting his direct ownership stake to 15,341 shares. OFC Bancorp is a publicly-owned financial holding company that provides various banking and financial services through its subsidiaries. The company’s main subsidiary, Oriental Bank, is a full-service Puerto Rico-based commercial bank that has 48 branches throughout the country.

OFG Bancorp mainly operates its business through three segments: Banking, Wealth Management, and Treasury. The holding company had roughly $415 million of credit facilities granted to the Puerto Rican government, as well as its public corporations and municipalities at the end of 2015. The company’s net interest income for 2015 decreased to $337.37 million from $408.48 million in 2014. The decrease was mainly driven by lower balances in its acquired loan portfolios and lower yields in the company’s originated loan portfolio. The decrease also includes a $9.7 million decline in interest income from loans to the Puerto Rico Electric Power Authority (PREPA), which was placed in non-accrual in the third quarter of 2015, and Puerto Rico Aqueducts and Sewer Authority (PRASA), which was paid off in the second quarter of 2015.

Shares of OFG Bancorp are down by 59% in the past 12 months, including a decline of 8% in 2016. The company pays out an annualized dividend of $0.24 per share, which equates to a dividend yield of 3.59%. There were 11 hedge funds monitored by Insider Monkey with stakes in the financial holding company at the end of December, compared to 13 registered at the end of the third quarter. Thomas G. Maheras’ Tegean Capital Management reported ownership of 1.18 million shares of OFG Bancorp (NYSE:OFG) through its 13F filing for the fourth quarter.

Disclosure: None