In the past few weeks we have seen the indices and overall market going through wild swings, which is often the result of panic among investors. During these times, the market and investment community as a whole needs some kind of support to calm their jittery nerves, which generally comes from institutional investors and insider buying. While insider buying is usually considered a good sign for a stock at the best of times, it becomes an even more important signal to investors when it happens during times of extreme volatility and uncertainty, which is why we at Insider Monkey keep a close watch on such activity. In this article we are going to focus on two stocks which have recently seen strong insider buying activity: ProAssurance Corporation (NYSE:PRA), and Bank of SC Corporation (NASDAQ:BKSC).
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 57.6 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.
ProAssurance Corporation (NYSE:PRA) is a Birmingham, Alabama-based professional liability insurance company. On September 8, Ziad Haydar, an Independent Director of the company, purchased 3,065 shares at a weighted average price of $48.75. Following this transaction, Mr. Haydar now owns 4,323 shares. Shares of ProAssurance Corporation (NYSE:PRA) remained sideways throughout much of the first half of the year. However, beginning in mid-May, they started a gradual rally which lasted until mid-August, and is the major reason why the stock is trading up by 8% year-to-date. For the second quarter of 2015 ProAssurance Corporation (NYSE:PRA) reported EPS of $0.64 on revenue of $203.40 million, compared to analysts’ consensus estimate of EPS of $0.64 on revenue of $190.80 million. During the April-June period, Cliff Asness‘ AQR Capital Management increased its stake in the company by 379% to 295,073 shares.
Moving on to Bank of SC Corporation (NASDAQ:BKSC), the South Carolina-based holding company of The Bank of South Carolina, several Independent Directors and Officers of the company were awarded 478 unallocated shares at $16.75 each as Trustees of the Employee Stock Ownership Plan (ESOP) on September 8. This included the company’s President, Fleetwood S. Hassell, CFO and Treasurer, Sheryl G. Sharry, Executive Vice President, Douglas Sass, and Independent Director David Schools. Accounting for this transaction, Mr. Hassell now owns 43,874 shares directly and 64,528 shares indirectly, Mrs. Sharry owns 38,935 shares directly and 51,989 shares indirectly, Mr. Sass owns 5,997 shares directly and 34,231 shares indirectly, and Mr. Schools owns 330 shares directly and 24,867 shares indirectly. After trading below the $15 mark for most of the first quarter, Bank of SC Corporation (NASDAQ:BKSC)’s shares had a more than 15% rally in the subsequent two months, breaking the $17 mark. However, they haven’t been able to trade above that mark continuously, even after breaking it thrice over the last four-and-a-half months. Bank of South Carolina currently operates branches in four cities of South Carolina – Charleston, Summerville, Mt. Pleasant, and West Ashley. Bank of SC Corporation (NASDAQ:BKSC) reported EPS of $0.28 for the second quarter of 2015, a 12.93% year-over-year increase from EPS of $0.25 it reported for the same quarter last year. None of the hedge funds tracked by us had a position in the company at the end of June.
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