Insider Buying Investors Should Follow Witnessed At These 3 Companies

All U.S. stock indexes closed sharply in the red on the first trading session of 2016, as concerns over China’s growth slowdown are intensifying. Furthermore, the strengthening U.S. dollar and the weakening global economic growth might have also spurred more worries into equity markets, so this is a good time to ask questions about the direction of the U.S. equities through the end of 2016. Nonetheless, certain insiders have been ignoring the broader market sell-off, which points to their confidence in the future of their companies despite facing mounting macroeconomic worries at the moment. The Insider Monkey team pinned down three companies that witnessed noteworthy insider buys in the past week or so, so this article closely examines the recent performance of the companies in question.

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 102% over the ensuing 38 months, outperforming the S&P 500 Index by more than 53 percentage points (read more 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.

Actuant Corporation (NYSE:ATU) has registered an extremely high volume of insider buying over the past month or so. In fact, this kind of insider trading behavior is what investors should pay close attention to. To begin with, Executive Vice President and Chief Financial Officer Andrew Lampereur purchased 26,400 Class A shares this Monday and 10,000 shares on Thursday at prices ranging from $23.39 to $23.97 per share, boosting his holding to 373,458 shares. Moreover, Executive Vice President-Human Resources bought 15,000 shares on Monday and 5,000 shares on Wednesday at a weighted average cost of $23.75 and currently holds 70,415 shares. The shares of this global manufacturer of industrial products and systems are down 6% over the past one-year period, presumably owing to increasing concerns over the slowing global economy. Even though Actuant Corporation (NYSE:ATU)’s businesses offer a wide portfolio of products and services across various end markets (the company is highly-diversified), the company still has relatively weighty exposure to the energy sector and is also subject to currency exchange fluctuations. Actuant reported consolidated sales of $305 million for the first fiscal quarter, ended November 30, down by 7% year-on-year. Even so, the company reported earnings per share from continuing operations of $0.31 (excluding restructuring charges), higher than the guidance of $0.20 to $0.25 per share. Mason Hawkins’ Southeastern Asset Management added a 5.28 million-share position in Actuant Corporation (NYSE:ATU) to its portfolio during the July-to-September period.

Let’s move on to the second page of this daily insider trading article, where the insider buys reported at Atlantic Power Corp (NYSE:AT) and Sunstone Hotel Investors Inc. (NYSE:SHO) are closely scrutinized.

Atlantic Power Corp (NYSE:AT) saw four different insiders purchase shares in the last trading week of 2015, so let’s take a look at the most noteworthy purchases. To start with, President and Chief Executive Officer James J. Moore Jr. snapped up exactly 100,000 shares on Thursday at prices that ranged from $1.78 to $1.80 per share, lifting his total stake to 350,253 shares. Joseph E. Cofelice, Executive Vice President of Commercial Development, bought 30,000 shares on the same day at a weighted average price of $1.98 and currently owns 322,625 shares. Last but not least, Director Gilbert Samuel Palter reported purchasing 58,245 shares last week at a weighted average cost of $1.80, all of which are held by EGADS Enterprises (a bare trust of which the Director is the sole shareholder). After the recent purchase, EGADS Enterprises holds a stake of 350,000 shares. Atlantic Power owns and operates a fleet of power generation assets in the U.S. and Canada, while its power generation projects primarily sell electricity to utilities and other commercial customers under long-term contracts. This tends to reduce the exposure to fluctuations in commodity prices, but Atlantic Power still had a disappointing performance in 2015. The company reported project revenue of $321.8 million for the nine months that ended September 30, down from $370.0 million reported a year ago. The stock is down nearly 27% over the past year, which might explain the exploding insider trading activity on the buy side. Joel Ramin’s 12 West Capital Management upped its position in Atlantic Power Corp (NYSE:AT) by 21% during the third quarter to 7.31 million shares.

Sunstone Hotel Investors Inc. (NYSE:SHO) had not witnessed insider buying in more than a year until last week. Senior Vice President and General Counsel David Ryan Sloan acquired 17,750 shares last Monday at a price of $13.8 per share, currently owning 67,516 shares. The lodging real estate investment trust has seen its shares decline by 28% over the past year, partially owing to a significant sell-off that kicked off during the holiday-shortened trading session ahead of Christmas. The company mainly operates upper upscale hotels in the United States and primarily strives for operating in urban locations that benefit from high barriers to entry. The demand for lodging in the U.S. has been on an uptrend since the end of 2009, which has been reflected in Sunstone’s stock performance. Last year was not bad either for Sunstone Hotel Investors in terms of financial performance, as the company reported total revenues of $948.25 million for the nine-month period ended September 30, up from $852.12 million reported a year ago. The rising interest rate environment might put some weight on the company’s performance, as the increasing cost of capital can hinder its growth plan. A mere ten hedge funds tracked by Insider Monkey were invested in the REIT at the end of the third quarter. Ken Griffin’s Citadel Advisors LLC cut its stake in Sunstone Hotel Investors Inc. (NYSE:SHO) by 39% during the September quarter to 1.87 million shares.

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