The U.S. economy generated 173,000 jobs in August, down from July’s 245,000 revised figure and below analysts’ expectations of 220,000. Even though the unemployment rate is at its lowest level since April of 2008, the market is pricing in the “disappointment”. The Dow Jones Industrial Average is down over 250 points in the first trading hours, which clearly suggests that the turmoil is likely to continue in the weeks ahead. However, some corporate insiders are buying their companies’ shares amid a broader market correction, implying that the concerns about the global economy might have hit their companies’ stock performance too hard. Aerohive Networks Inc. (NYSE:HIVE), Majesco (NYSE:MJCO), and Ford Motor Co. (NYSE:F) are three companies that have seen insiders buy their stock recently and their actions are not looking very well-timed at the moment, but they might be focusing on the companies’ long-term performance instead.
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 118% over the ensuing 36 months, outperforming the S&P 500 Index by nearly 61 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 by discussing the insider activity at Aerohive Networks Inc. (NYSE:HIVE), whose shares are 1.82% in green today, despite the decline of the broader market. David K. Flynn, President and Chief Executive Officer of Aerohive, acquired 36,272 shares for $6.02 apiece on Thursday. Aerohive’s stock has gained 28% year-to-date in spite of a recent pullback and recently the company has expressed its belief that the revenue for the third quarter will be at the top end of the guidance range of $40-42 million, which was provided at the beginning of August. Having said that, it might be the case that Aerohive Networks, a leader in controller-less Wi-Fi and cloud-managed mobile networking, is experiencing a very strong quarter and China’s economic slowdown or other global growth concerns are not affecting the company’s fundamentals at all. Michael Murphy and Daniel Donoghue’s Discovery Group boosted its stake in Aerohive Networks Inc. (NYSE:HIVE) during the second quarter, owning 2.77 million shares as of June 30.
Moving on to Majesco (NYSE:MJCO), which saw an executive buy heavily its stock recently. Prateek Kumar, Executive Vice President and P&C Industry Leader at the provider of software for the insurance industry, purchased 1,001 shares on Thursday alone at prices in the range of $4.94 – $4.95 per share, amassing a stake of 4,750 shares. The company was listed on the New York Stock Exchange on June 29, so it seems that Prateek Kumar and other insiders who have been buying shares of the company believe that the stock is worth more than the price it is trading at. Majesco recently posted its financial results for the first fiscal quarter of fiscal 2016 that ended June 30, reporting revenue of $23.2 million, compared to $16.9 million a year ago. Meanwhile, the company’s net income came at $82,000, versus a loss of $862,000 delivered a year earlier. To conclude, Majesco’s stock is currently trading flat since the IPO, so it might be wiser for potential investors to wait until the current turmoil in the financial markets fades away.
Ford Motor Co. (NYSE:F)’s director John C. Lechleiter bought 3,000 shares at $13.85 per unit on September 3. Following the transaction, the director owns 14,000 shares valued at $189,840. The performance of the company’s stock has not been great so far in 2015, given that it has lost 12% since the beginning of the year. The U.S. carmaker’s Russian joint venture, Ford Sollers, has opened a new engine plant in the Tatarstan region, which has the capacity to produce approximately 105,000 engines a year, and can expand the production up to 200,000 units. The plant that costed around $275 million is expected to make the company’s Russian-produced vehicles less exposed to currency fluctuations and less dependent on imported components. Although Russian car sales have been declining for several straight months as the economy experiences a serious recession, the plant is expected to provide noteworthy benefits over a long-term spectrum. Ken Heebner’s Capital Growth Management is one of the largest shareholders of Ford Motor Co. (NYSE:F) within our database, holding 4.38 million shares.
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