Insider Buying Activity Supports Smart Money’s Stance on Two of These Three Stocks

All major U.S. indices are trading higher, after the freshly-released data on U.S. consumer prices reduced the likelihood of seeing a rate hike this year. The consumer-price index declined a seasonally-adjusted 0.2% in September, which marks the second consecutive month of a declining pace of inflation. Even more to that, the weaker-than-expected jobs report and dwindling consumer spending have also reduced the odds of a rate hike by the end of the year. However, the flagging fundamentals should not necessarily spur optimism, while the “cheap money” will sooner or later run off. Even so, some companies’ insiders have been piling up more shares lately, which could signify that they await a bright future at these companies. It is also important to note that the insider buying activity is more likely to be related to firm-specific developments, which could theoretically point to some attractive buying opportunities. Thus, the following article will examine the insider buying activity at three companies that will be individually discussed later on.

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 102% over the ensuing 3 years, outperforming the S&P 500 Index by 53 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.

Ryman Hospitality Properties Inc. (NYSE:RHP) is one of the three companies that saw its insiders acquire stock recently. Chairman and Chief Executive Officer Colin V. Reed bought 6,658 shares on Thursday for $53.04 apiece. After the recent purchase, the executive holds 909,429 shares, which include 511,356 shares credited to his Supplemental Executive Retirement Plan (SERP). Thus, each of these 511,356 shares represents the economic equivalent of one share of common stock that is payable following termination of employment. Colin Reed also owns an indirect ownership stake of 225,793 shares. The lodging real estate investment trust (REIT) is anticipated to release its third-quarter earnings report on November 3. In the previous earnings call, Ryman Hospitality Properties Inc. (NYSE:RHP)’s officials acknowledged that the third-quarter top-line revenue growth in its Hospitality segment was expected to be impacted by a challenging holiday calendar and the room renovation project at Gaylord Opryland. Meanwhile, the shares of the REIT are slightly more than 1% in the green year-to-date, and the company’s downward revised guidance on revenue per available room has been already priced in. The number of funds tracked by Insider Monkey with positions in the stock decreased to 20 from 27 during the second quarter, amassing 19.90% of the company’s shares at the end of June. Mario Gabelli’s GAMCO Investors is the top stockholder of Ryman Hospitality Properties Inc. (NYSE:RHP) with 5.03 million shares.

Let’s now turn our full attention to the second page of this article, where we will discuss the other two companies with heavy insider buying activity.

Specialty rental services company General Finance Corporation (NASDAQ:GFN) is another company that saw high insider trading activity on the buy side. Director James B. Roszak purchased 5,000 shares at a price of $4.03 per unit, boosting his overall holding to 65,008 shares. The shares of the company have been on a steady downtrend for the whole year, declining by 58% year-to-date. However, the stock appears to be in a bottoming-out phase at the moment, so the Director might be betting on a turnaround. On September 8, General Finance Corporation (NASDAQ:GFN) released its financial results for the fiscal 2015, posting revenues of $303.8 million, which were up 6% year-over-year. However, the company’s bottom-line came at $3.5 million, down from $3.9 million reported a year ago. The average fleet utilization also declined year-over-year, decreasing to 80% from 81%. Of course, there might be more downside risk for the stock, but it has lost most of its value already. Thus, bottom-fishing investors might stumble upon good trading opportunities in connection with the stock. Jim Simons’ Renaissance Technologies is one of the hedge funds tracked by our team that poured more cash into General Finance Corporation (NASDAQ:GFN) during the second quarter, amassing nearly 88,000 shares as of June 30.

Last but not least, we will take a thorough look at the insider trading activity at Layne Christensen Company (NASDAQ:LAYN). David A. B. Brown, who has been a director of Layne since 2003 and Chairman of the company’s Board since 2005, reported acquiring 10,000 shares on Wednesday at roughly $6.77 apiece, and currently owns 35, 213 shares. A recent 13D filing with the U.S. Securities and Exchange Commission revealed that Mario Gabelli’s GAMCO Investors and its affiliates own 2.12 million shares of the company, which account for 10.72% of its outstanding common stock. This marked an increase of exactly 50% from the stake revealed in the 13F filing for the June quarter. It is also worth pointing out what that the shares of Layne Christensen Company (NASDAQ:LAYN) have advanced 14% over the past month, which however are still 25% in the red year-to-date. The stock became more popular among the hedge funds monitored by our team, as the number of top money managers invested in Layne Christensen increased to 16 from 10 during the June quarter. These hedge funds stockpiled 37.20% of the company’s common stock on June 30. Aside from GAMCO Investors, Peter Schliemann’s Rutabaga Capital Management represents another top stockholder of Layne Christensen Company (NASDAQ:LAYN) with 2.18 million shares.

Disclosure: None