The market is waiting for the Federal Reserve’s decision on rate hikes this week with bated breath. While there is one camp of experts that feels the U.S economy has improved enough to get off the zero-interest-rate mark, another camp suggests that we are still far way from an economy that is showing consistent growth. The volatility we have seen in the equity markets in the past few weeks has primarily been caused by the tussle between these two camps. At the same time, when several investors have panicked or chose to stay away from the market due to this ongoing tussle and the resulting volatility, we have seen a class of investors making full use of it to buy particular stocks – the insiders. This insider buying essentially signifies that regardless of which part of the interest rate debate the Fed sides with in the coming days, insiders of a select few companies think that the shares of their companies are going to do well in the short to medium-term. In this article we are going to focus on three such companies: Intersil Corp (NASDAQ:ISIL), W&T Offshore, Inc. (NYSE:WTI), and Comfort Systems USA, Inc. (NYSE:FIX).
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 118% over the ensuing 36 months, outperforming the S&P 500 Index by over 60 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.
Let’s start with Intersil Corp (NASDAQ:ISIL). On September 11, the President and CEO of the company, Necip Sayiner, acquired 19,000 shares at a weighted average price of $10.40 per share, taking his total holding in the company to 171,525 shares. Shares of the California-based integrated circuits maker have had a gradual decline since the beginning of March and are currently trading down by 28.58% year-to-date. On September 9, Intersil Corp (NASDAQ:ISIL) announced the acquisition of Great Wall Semiconductor in a $23 million deal. Great Wall Semiconductor is engaged in the development of a power metal-oxide semiconductor field-effect transistor (MOSFET) technology for consumer, space, and cloud computing applications. Cliff Asness‘ AQR Capital Management was one of the hedge funds that increased its stake in Intersil Corp during the second quarter, by 20%, giving it 784,359 shares of the company at the end of June.
Moving on to W&T Offshore, Inc. (NYSE:WTI), Virginia Boulet, who serves as an Independent Director at the company, bought 12,750 shares on September 11, at a weighted average price of $3.15 per share. Accounting for this transaction, Ms. Boulet now owns 67,872 shares of W&T Offshore, Inc. (NYSE:WTI). Like most other oil and gas producers, shares of W&T Offshore have mirrored the decline in crude oil prices and are down by 77% since last year, with almost 60% of those declines coming this year alone. On September 1, the company announced entering into an agreement with Ajax Resources LLC under which it will sell all of its interests in Yellow Rose Field in the Permian Basin to the latter for $376 million. Several analysts and experts have lauded W&T Offshore for this deal, as it will allow the company to pay off a large part of its debt while at the same time ensuring that it doesn’t sacrifice any of its offshore holdings in the process. Brian Riano, John Eckerson, Sean Fahey and Albert Marino‘s Claren Road Asset Management became the largest shareholder of the company by the end of the second quarter among the hedge funds tracked by us, having initiated a position of 3.7 million shares during the quarter.
Finally, Franklin Myers, an Independent Director at Comfort Systems USA, Inc. (NYSE:FIX) acquired 4,000 shares of the company at a weighted average price of $28.36 per share on September 11 and now owns a total of 152,500 shares. Comfort Systems USA, Inc. (NYSE:FIX) is one of the few companies this year whose shares have risen steadily throughout the year. Even the recent volatility in the equity markets hasn’t been able to do much damage to the stock, as it trades with year-to-date gains of 64%. For the second quarter of the year the company reported better than expected earnings on July 30, declaring EPS of $0.35 on revenue of $416.60 million, compared to EPS of $0.24 on revenue of $401.10 million that analysts had expected. Owning 755,722 shares at the end of June, Chuck Royce‘s Royce & Associates was the largest shareholder of Comfort Systems USA among the funds covered in our database.
Disclosure: None
