Insider Trading Alert: eBay Inc. (EBAY), Other Companies Witness Notable Insider Buying

All major U.S stock indexes closed sharply in the green in the first trading session of December, posting the biggest gains seen over the past several sessions. The Dow Jones Industrial Average closed 168.43 points in the green on Tuesday, while the Standard and Poor’s 500 Index climbed by roughly 1.1%. The Federal Reserve is expected to raise interest rates this year, while the European Central Bank is expected to expand its bond-buying program. The former event is set to test the strength of the U.S economy, while the latter will most likely diminish the ongoing concerns about a slowing global economy. However, it is close to impossible to predict how U.S equities will react to these two major events, as there are too many unknown variables. Meanwhile, some companies’ corporate insiders have been piling up more stock of their companies, which points to the fact that these individuals anticipate making money by investing in their companies’ stock. That being said, this article will discuss several noteworthy insider buys registered at three companies recently.

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.

Let’s start out by examining the insider buying activity at eBay Inc. (NASDAQ:EBAY), which has witnessed the first purchase by an insider in more than two years. Director Paul S. Pressler acquired a 5,140-share stake on Monday at a weighted average price of $29.12. The online retailer/auction house has seen its shares gain more than 8% over the past three months, yet they are still trading at an attractive trailing price-to-earnings ratio of 14.75. This compares with the average of 23.28 for the companies contained within the S&P 500 Index. eBay Inc. (NASDAQ:EBAY) generates its revenue from two main sources: transaction revenue, and marketing services and other revenue. Although both revenue streams have been slackening recently, the global commerce leader has been able to surpass earnings estimates in each of the last four quarters. The company’s third-quarter net transaction revenue added up to $1.66 billion, compared with $1.70 billion reported last year. Meanwhile, its marketing services revenue declined to $440 million from $447 million year-over-year. eBay lost some of its charm among the hedge funds monitored by Insider Monkey during the third quarter, as the number of smart money investors with positions in the company declined to 83 from 99 quarter-over-quarter. Daniel S. Och’s OZ Management is bullish on eBay Inc. (NASDAQ:EBAY), owning 21.75 million shares on September 30.

The second page of this daily insider trading article reveals the insider buys registered at Mallinckrodt PLC (NYSE:MNK) and NN Inc. (NASDAQ:NNBR).

Mallinckrodt PLC (NYSE:MNK) had a large volume of insider buying last week, as four different insiders purchased stock. To start with, Senior Vice President and Chief Human Resources Officer Ian J. Watkins purchased 470 shares on Friday for $66.49 each, boosting his overall stake to 13,572 shares. Hugh O’Neill, Senior Vice President and President of Autoimmune and Rare Diseases snapped up 750 shares on the same day at a weighted average cost of $66.78 and currently holds 9,765 shares. Coleman N. Lannum, Senior Vice President, Investor Strategy and Investor Relations Officer, reported the acquisition of 1,200 shares on Friday at $66.77-to-$66.94 per share, 400 shares of which are held by his wife. After the recent acquisition, the executive holds a direct ownership stake of 9,986 shares. Last but not least, Meredith Fischer, Senior Vice President of Communications and Public Affairs, purchased 2,200 shares at a weighted average price of $66.93, enlarging her holdings to 14,280 shares.

The shares of the specialty biopharmaceutical and nuclear imaging business are down by 27% for the year, but several financial services hubs have great expectations for the company. Just recently, Northland Capital reiterated its ‘Outperform’ rating on the stock and raised its price target to $95 from $92, which yields an upside of at least 32%. Similarly, Mallinckrodt’s management anticipates that the company is well-positioned to benefit from the increased global access to healthcare, the growing demand for pharmaceutical products from emerging countries, and from the fast-increasing focus on diagnostic imaging for early diagnosis of diseases. Conan Laughlin’s North Tide Capital added a 1.00 million-share position in Mallinckrodt PLC (NYSE:MNK) to its portfolio during the September quarter.

Lastly, let’s discuss a sizable insider purchase registered at NN Inc. (NASDAQ:NNBR). Director David L. Pugh purchased 41,266 shares on Monday and 5,314 shares on Tuesday at prices ranging from $17.00-to-$17.05 per share, and currently holds 73,500 shares. The shares of the diversified industrial company are 17% in the red year-to-date, and are trading at a cheap trailing P/E ratio of 18.32. Hence, it appears that the market either underestimates the potential of the company and its six acquisitions that have been closed since the beginning of 2014 or simply does not believe in management’s ability to integrate those businesses. At the same time, a potential economic recession could have a negative impact on the company’s end markets, which could in turn put downward pressure on its financial performance and growth strategy. In fact, NN experienced a substantial reduction in customer orders throughout 2009 mainly as a result of diminishing demand in the automotive and industrial end markets in the aftermath of the financial crisis of 2008. The recent recession on the European continent also adversely impacted NN’s businesses quite significantly. Meanwhile, 17 hedge funds from our database were invested in the company at the end of the third quarter, amassing nearly 12% of its outstanding shares. Royce & Associates, founded by Chuck Royce, owns 1.49 million shares of NN Inc. (NASDAQ:NNBR) as of September 30.

Disclosure: None