Heavy Insider Buying at 3 Recovering Companies

With U.S. equities enjoying a three-week-long rally, last week’s insider selling to insider buying ratio reverted back to its more common levels. Last week’s dollar volume of insider buying was nearly halved from the previous week, whereas the volume of insider selling more than doubled week-over-week. Insider trading behavior can serve as an extremely helpful barometer of insider sentiment about a company’s strength or the overall market’s potential. It is true that the emergence of stock-based compensation at numerous companies has distorted the insider trading data, particularly when it comes to insider selling. Nonetheless, retail investors should continue to examine insider trading behavior when timing their trades. Numerous insiders who were purchasing their companies’ shares when U.S. equities were heading south earlier this year turned out to have made very profitable trades, as their companies’ shares have rebounded sharply in the past few weeks. Long term-oriented retail investors need to pay close attention to insider buying activity, considering that insiders usually buy their companies’ shares because they appear to be extremely undervalued. Although the insider buying activity has been flagging in the past several days, the Insider Monkey team pinpointed several companies that recently registered noteworthy insider purchases.

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 kick off our discussion by examining the recent insider buying registered at Huntington Bancshares Incorporated (NASDAQ:HBAN), which had three different insiders purchase shares over the course of the previous week. To begin with, Director Peter J. Kight purchased exactly 100,000 shares last Thursday at prices that ranged from $9.36 per share to $9.62 per share, which lifted his stake to 245,758 shares. Moreover, Chief Executive Officer and President Stephen D. Steinour bought 10,000 units of common stock a day earlier at prices ranging from $9.27 to $9.28 per share, increasing his direct ownership stake to 3.10 million shares. Paul G. Heller, Chief Technology Officer and Senior Executive Vice President, snapped up a mere 514 shares on Friday at a cost of $9.73 per share and currently owns 292,010 shares.

It should be noted that the shares of the multi-state diversified regional bank holding company have advanced by more than 10% since we covered another strong wave of insider selling at the company in early February. The CEO bought 100,000 shares on February 1 at prices in the range of $8.54 to $8.59 per share, while Huntington Bancshares Incorporated (NASDAQ:HBAN)’s shares are currently trading at around $9.50 a share. In January, Huntington announced a cash-and-stock deal to acquire Ohio-based diversified financial services company FirstMerit Corp (NASDAQ:FMER). Under the terms of the deal, each shareholder of FirstMerit will receive 1.72 shares of Huntington and $5.00 in cash for each share of FirstMerit. FirstMerit Corp (NASDAQ:FMER) has approximately 366 banking offices and 400 ATM locations in Ohio, Michigan, Wisconsin, Illinois, and Pennsylvania. According to a recent SEC filing, Huntington’s officials anticipate that the company will have to divest some FirstMerit or Huntington branches in certain banking areas to receive regulatory approvals. Just recently, analysts at Jefferies reiterated their ‘Buy’ rating on Huntington’s stock and have a price target of $12.50 on it, citing decent organic growth prospects and that the approval process of the aforementioned merger is heading in the right direction. The merger is expected to close in the third quarter of this year. David Harding’s Winton Capital Management upped its position in Huntington Bancshares Incorporated (NASDAQ:HBAN) by 56% during the final quarter of 2015, to 4.35 million shares.

The next two pages of this insider trading article digest the recent insider activity witnessed at TASER International Inc. (NASDAQ:TASR) and J. C. Penney Company Inc. (NYSE:JCP).

TASER International Inc. (NASDAQ:TASR) saw one member of its Board of Directors purchase two sizable blocks of shares this week. Director Hadi Partovi purchased 100,000 shares on Monday at a weighted average cost of $19.85 and currently holds an ownership stake of 267,406 shares. The Director had been profitably buying his company’s shares over the past several years until mid-July 2015, when TASER’s shares plummeted. Mr. Partovi acquired 20,000 shares at $25.75 apiece after the stock plunged in the summer of 2015 and continues to show his confidence in the stock despite further struggles since then.

TASER International is a leading manufacturer and marketer of conducted electrical weapons (CEWs) and connected wearable on-officer cameras, primarily serving federal, state and local law enforcement in the United States and worldwide. The company has been growing at a solid pace over the past several years, if solely relying on its top-line figures. TASER generated net sales of $197.89 million during 2015, which increased from $164.53 million in 2014, $137.83 million in 2013, and $114.75 million in 2012. The demand for the company’s Axon video products increased significantly last year, as evidenced by its net sales figures. Net sales for the Axon segment reached $35.52 million for 2015, which marked an increase of 87.8% year-over-year. This increase was mainly driven by the company’s actions aimed at increasing bookings and brand awareness for Evidence.com and Axon cameras. Evidence.com is a cloud-based system that enables agencies to store all data from the company’s body-worn cameras, as well as allows workflows for managing and sharing the data. TASER International increased its Axon sales team from 16 at the end of 2014 to 27 full-time salespeople at the end of 2015, and this move has paid off quite handsomely.

The shares of TASER are down by nearly 20% over the past 12 months despite having gained 11% since the beginning of 2016. The number of hedge funds in our system with stakes in the company declined to ten from 15 during the December quarter. Marc Majzner’s Clearline Capital acquired a new stake of 520,299 shares in TASER International Inc. (NASDAQ:TASR) during the fourth quarter.

J. C. Penney Company Inc. (NYSE:JCP) had not witnessed any insider buying activity for quite awhile until this week, when one of its most influential insiders snapped up a sizable block of shares. President and Chief Executive Officer Marvin R. Ellison bought 50,000 shares on Wednesday at prices varying from $11.76 to $11.86 per share. After the recent purchase, the CEO currently holds a stake of 2.51 million shares. The insider purchase comes after the department store chain released its financial results for the fourth quarter of fiscal year 2015 that ended January 31, which sent the stock surging.

The shares of J. C. Penney are up by a whopping 73% since the beginning of 2016, which reflects the company’s strong recovery path from a long-lasting downward spiral. Some analysts and investors were previously anticipating J. C. Penney to share the same grim destiny of struggling retailer Sears Holdings Corp (NASDAQ:SHLD). The long-struggling department store chain announced the appointment of Ron Johnson as CEO in June 2011, the man who was in charge of Apple Inc. (NASDAQ:AAPL)’s highly-successful retail stores. The former CEO’s turnaround attempt was anything buy successful, as the department store chain registered a same-store sales decline of 25% in 2012.

J. C. Penney recently reported its first quarterly profit since those gloomy days of Johnson’s failed turnaround attempt, posting adjusted earnings per share of $0.39 for the quarter. The apparel and home furnishings retailer reported net sales of $12.63 billion for fiscal year 2015, which denotes an increase of 3.0% year-over-year, while the company’s comparable store sales grew by 4.5% year-over-year. It should also be mentioned that J. C. Penney’s management anticipates 2016 comparable store sales to grow by another 3%-to-4%. More importantly, its management anticipates positive adjusted earnings per share for the year. Jim Simons’ Renaissance Technologies owns 17.93 million shares of J. C. Penney Company Inc. (NYSE:JCP) as of the end of 2015.

Disclosure: None