Generally, corporate insiders have all the knowledge about their investments that could turn an average investor into a “successful” one. It’s commonly known that corporate insiders possess a thorough knowledge and understanding of their companies and the industries they are operating in. Therefore, it does make perfect sense to track and examine insider trading activity, as it might provide useful insights into the prospects of different companies. In the following article, we will analyze the recent insider trading activity at three such companies: Kennedy-Wilson Holdings Inc. (NYSE:KW), Endurance Specialty Holdings Ltd. (NYSE:ENH) and Fabrinet (NYSE:FN). The first two companies saw insiders buy shares of their stock yesterday, whereas the latter company had a large volume of insider selling on the same day.
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 35 months, outperforming the S&P 500 Index by 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 by looking into the insider activity at Kennedy-Wilson Holdings Inc. (NYSE:KW), which saw three different insiders purchase shares yesterday. To begin with, Stanley R. Zax, who has been acting as Independent Director at Kennedy-Wilson since 2010, acquired 19,800 shares at $22.18 each. Following the transaction, Zax now has a total stake of 169,800 shares. Furthermore, Matthew Windisch, an Executive Vice President at the company, added 5,000 shares at a price of $22.98 per share to his holding that now consists of 493,020 shares. Let’s not forget to mention that the company’s Chief Financial Officer, Justin Enbody, also purchased 2,500 shares at $22.32 apiece and boosted his stake to 241,392 shares. The shares of Kennedy-Wilson, a real estate investment and services company, are down by 9% year-to-date, mainly owning to the stock’s recent slump suffered since mid-August. Reportedly, Kennedy-Wilson Holdings acquired 720,000 additional shares of Kennedy-Wilson Europe Real Estate plc (LSE:KWE) between August 17 and August 18, amassing a 17.7% stake in the company. Hence, it seems that the U.S.-based company is increasing its exposure to the European markets in an attempt to diversify its risk. Meanwhile, Prem Watsa’s Fairfax Financial Holdings, the largest shareholder in Kennedy-Wilson Holdings Inc. (NYSE:KW) within our database, boosted its stake in the company to 8.95 million shares during the second quarter.
Moving on to Endurance Specialty Holdings Ltd. (NYSE:ENH), the Chairman and Chief Executive Officer of the company, John Charman, acquired 100,000 shares through two transactions on August 25 and 26 at prices of $61.76 and $61.77 per share respectively. After the recent transactions, the man in charge of Endurance Specialty owns 811,255 shares. The company’s shares are 3% in the green year-to-date despite suffering a significant drop over the last two weeks. The slump might have been caused by the broader negative market sentiment that has originated recently from the bad economic news coming out of China. So it is highly probable that the CEO of Endurance Specialty believes that the market has punched his company’s shares way too strongly. The company recently announced its financial results for the second quarter, posting net income of $76.0 million or $1.68 per diluted share, compared to $75.0 million or $1.68 per share reported a year ago. Although Ric Dillon’s Diamond Hill Capital slightly decreased its stake in Endurance Specialty Holdings Ltd. (NYSE:ENH) to 939,369 shares during the second quarter, the investment firm still remained the largest equity holder in the company within our database.
We can now turn our attention to the company that saw an insider sell some of its shares, Fabrinet (NYSE:FN). John Marchetti, Chief Strategy Officer at Fabrinet, offloaded 20,519 shares at a price of $19.14 per share, reducing his stake to 97,474 shares. The stock has gained slightly over 10% since the beginning of the year, so it might be the case that Joch Marchetti is pleased with the performance and cashing out some of his holdings. However, the CSO is the only one who knows the true reason behind the sell-off, so the insider selling activity remains subject to speculation. The leading provider of advanced optical packaging and precision optical, electro-mechanical, and electronic manufacturing services recently announced its financial results for the fourth quarter and fiscal year that ended June 26, 2015. Indeed, the strong financial figures for the quarter have pushed the stock higher. Fabrinet posted fourth quarter revenues of $206.5 million, which represents the company’s highest quarterly revenues ever, compared to $160.1 million reported in the same quarter a year ago. The company’s GAAP net income for the quarter didn’t disappoint either, as it came in at $13 million or $0.36 per diluted share, compared to $10.3 million or $0.29 posted a year ago. Chuck Royce’s Royce & Associates is the top shareholder of Fabrinet (NYSE:FN) within our database, holding a 3.94 million-share stake.
Disclosure: None
