Insiders Buy More Shares Of These 3 Companies

With the winter holidays rapidly approaching, some companies’ insiders have been investing more capital in stocks instead of buying more gifts for family and friends. It is highly likely that the bullish camp of insiders are buying shares on the belief that they are greatly undervalued by the broader market. Most of the time, insiders’ purchases tend to greatly outperform broader market benchmarks, which is not surprising if bearing in mind that these well-informed individuals have a better understanding about their companies’ businesses, their ongoing challenges and future prospects. For that reason, this article will discuss several noteworthy insider buys reported at three US-listed companies and will also cover the recent performance of those companies.

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 begin our discussion by investigating the insider trading activity witnessed at Prospect Capital Corporation (NASDAQ:PSEC), which has seen heavy insider buys in recent weeks. To begin with, Chief Executive Officer John F. Barry purchased 1.05 million shares last week at prices that ranged from $6.20-to-$6.63 per share, boosting his overall holding to 7.31 million shares. Moreover, President and Chief Operating Officer M. Grier Eliasek snapped up 20,000 shares last Tuesday at a cost of $6.28 per share and currently owns 372,196 shares. Last but not least, Brian H. Oswald, Chief Financial Officer, Chief Compliance Officer, Secretary and Treasurer, bought a 10,000-share block last Monday at a price of $6.3 per share, lifting his stake to 475,000 shares. The business development company that mainly lends to and invests in middle market private companies has seen its shares decline 19% so far in 2015, after plummeting by more than 11% since the beginning of December. This sharp drop has been presumably triggered by concerns about the company’s exposure to the energy sector and its investments in high-yield bonds. Prospect Capital Corporation (NASDAQ:PSEC) mainly invests in senior and subordinated debt and equity of private companies, while some of its equity positions are subject to substantial changes in value. Thus, some of energy-related equity positions dropped in value as a result of the depressed energy markets. Scopia Capital Management, founded by Matt Sirovich and Jeremy Mindich, reported owning 2.26 million shares of Prospect Capital Corporation (NASDAQ:PSEC) through the latest round of 13F filings.

The second page of this daily insider trading article discusses the insider buys registered at Restaurant Brands International Inc. (NYSE:QSR) and AutoZone Inc. (NYSE:AZO).

Restaurant Brands International Inc. (NYSE:QSR) had one director make a sizable purchase last week. Thomas V. Milroy bought 10,000 shares on Wednesday at a weighted average price of $36.52, doubling his stake to 20,000 shares. The company franchises and operates quick services restaurants under the Tim Hortons and Burger King brand names. The shares of this large quick service restaurant chain are down 6% year-to-date even though the company experienced strong top- and bottom-line growth this year. The company’s revenues totaled $3.00 billion for the nine months that ended September 30, up from $781.0 million reported a year ago. TH global system comparable sales growth reached 5.3% for the first nine months of 2015, while BK global system comparable sales grew 5.9% (reflecting the success of new products and promotions). Meanwhile, the company’s net income for the same nine-month period increased $215.2 million year-on-quarter to $327.2 million, as a result of an increase in sales, an increase in franchise and property revenues and a drop in operating expenses. The toughening competition in the QSR industry, the uncertainty in the consumer environment and weakening pricing power are some factors that can put weight on the operator of TH and BK restaurants in the upcoming year. The number of smart money investors bullish on the company declined to 29 from 37 during the September quarter, while Bill Ackman of Pershing Square holds 38.00 million shares in Restaurant Brands International Inc. (NYSE:QSR) as of September 30.

AutoZone Inc. (NYSE:AZO) had not witnessed any insider buying activity in more than one year until last week. Director Douglas H. Brooks reported buying 255 shares at a price of $743.62 per share and currently owns 1,232 shares. AutoZone’s shares are up by 19% year-to-date, while several reputable financial hubs believe the stock is poised to go higher. Earlier this month, RBS Capital Markets reiterated its ‘Sector Perform’ rating on the stock and raised its price target to $789 from $726. In the meantime, the stock trades at a rather cheap trailing price-to-earnings ratio of 19.93, which is below the average of 22.65 for the companies included in the S&P 500. The financial results of this retailer and distributor of automotive replacement parts and accessories have greatly benefited from lower gas prices, which resulted in higher disposable income for customers. AutoZone reported net sales of $2.39 billion for the first quarter of fiscal 2015 that ended November 21, up from $2.26 billion reported for the same period a year ago. Similarly, the company’s total auto parts sales grew 5.6% year-on-year, thanks to increased domestic same store sales and additional revenues from new stores. By the same token, AutoZone’s diluted earnings per share for the quarter increased by 14% year-over-year to $8.29. Hence, it appears that the plummeting oil prices impelled the Director to buy more stock last week, anticipating strong financials in the upcoming quarters. Iridian Asset Management, founded by David Cohen and Harold Levy, holds a 225,667-share positon in AutoZone Inc. (NYSE:AZO) as of the end of the third quarter.

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