Insider Buying Metric Points To A Golden Opportunity In These Stocks

All major U.S. stock indexes closed in the red on Tuesday, with the seven-session recovery rally of the Dow Jones Industrial Average hitting a wall. However, the Standard and Poor’s 500 Index still closed above the psychological 2,000 level, after losing 0.68%. Earnings reports have been trickling out, but the market will see more of them in the upcoming days. In fact, the pending third quarter earnings rush will most likely show us the ultimate direction of the market for the rest of the year, as the growing worries about China’s economic slowdown are easing. Even so, it should be expected that China’s third quarter growth figures, which will be released next week, will shed some light on the ongoing economic recovery process in the Asian country and in turn affect the global markets. Leaving the macroeconomic issues aside, the Insider Monkey team identified three companies that registered a high volume of insider buying activity recently, which could point to strong future prospects at these companies. Urban Edge Properties (NYSE:UE), Adams Diversified Equity Fund Inc. (NYSE:ADX), and Park Electrochemical Corp. (NYSE:PKE) are the three companies in question; therefore, we will dicuss particular developments at these companies that could have guided insiders to buy stock.

Helen Filatova/Shutterstock.com

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 three 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.

To start with, we will examine the insider trading activity at Urban Edge Properties (NYSE:UE), a real estate investment trust (REIT) that owns and operates retail properties in high barrier-to-entry markets. Chief Operating Officer Robert Minutoli acquired 5,000 shares last Thursday at a weighted average price of $22.73, boosting his stake to 19,172 shares. The stock is slightly over 5% in the red year-to-date, partly owning to the recent broader market sell-off. Urban Edge Properties, which owns and operates a real estate portfolio comprised of 79 shopping centers, three malls, and a warehouse park, has been very successful in increasing the occupancy rate of its retail portfolio. The same-property retail portfolio occupancy rate increased by 130 basis points year-over-year to 96.6% in the second quarter. The company is set to post its third quarter earnings report on November 4 after the market close, which will reveal whether the REIT was able to make the most of its retail portfolio during the quarter. D.E. Shaw & Co. L.P., founded by David E. Shaw, owns approximately 392,000 shares of Urban Edge Properties (NYSE:UE) as of June 30.

Let’s now move on to Adams Diversified Equity Fund Inc. (NYSE:ADX), a self-management investment trust that has seen two Directors acquire shares this week. Director Roger W. Gale reported the acquisition of 4,155 shares at a price of $13.24 per share and currently holds 17,227 shares. Frederic A. Escherich, another Director on the company’s Board, acquired 750 shares on Monday for $13.20 each. Following the transaction, the Director owns 31,244 shares valued at nearly $410,000. These acquisitions come after Adams Diversified Equity Fund Inc. (NYSE:ADX) revealed its nine-month performance on October 8. The investment firm reported a negative return on net asset value of 4.9% for the nine-month period that ended September 30, but outperformed both the S&P 500 Index and the Lipper Large-Cap Core Mutual Funds Average (Lipper Peer Group). The shares of the investment trust have lost 4% since the beginning of the year, closely following the path of the S&P 500 benchmark. All in all, these Directors’ moves might suggest their confidence in the management team and prospects of this closed-end fund.

Finally, Park Electrochemical Corp. (NYSE:PKE) Director Carl William Smith acquired 500 shares earlier this week at prices of $17.57 and $17.58 per share. After the recent purchase, the Director owns exactly 1,000 shares. The global advanced materials company has seen strong buying activity over the past two months or so, which could suggest that the company has a great future outlook. Just a few days ago, Park Electrochemical posted its earnings report for the second quarter of fiscal year 2016 that ended August 30. The company reported net sales of $37.95 million, compared to $42.35 million reported in the same quarter a year ago. Meanwhile, its earnings per share came to $0.23, lower than the $0.24 figure reported a year ago. The company’s stock performance has been disappointing in 2015, partly impacted by the freshly-released financial results. The stock has lost more than 28% since the beginning of the year, so the Director might be acquiring shares on weakness. Mario Gabelli’s GAMCO Investors owns a 664,300-share stake in Park Electrochemical Corp. (NYSE:PKE), which might also serve as a bullish sign concerning the stock.

Disclosure: None