Insiders Giving Strong Vote of Confidence to Chesapeake Energy (CHK) And These 2 Companies

No one can deny that corporate executives and directors generally have more knowledge and insight about their companies’ future prospects and developments than anyone else. While they are not allowed to trade on material non-public information, they do have their own perception about the current state of the industry their companies are operating in and the potential of their companies. Corporate insiders are well-informed about the cyclical trends, order flow, production bottlenecks, and a wide array of other factors that influence their companies’ businesses, so their insider trades may offer useful information for individual investors. Extensive research has provided evidence that insider purchases tend to outperform the broader market, which is the primary reason why Insider Monkey tracks this type of activity. Having said that, the following article will discuss the noteworthy insider buying activity registered at three companies recently, and their performance over the past several months.

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 buying noticed at SunOpta Inc. (USA) (NASDAQ:STKL), which has seen three insiders purchase stock thus far this week. Director Michael Detlefsen reported purchasing 10,000 shares on Tuesday at a price of CAD$9.00 ($6.79) per share, increasing his stake to 44,461 shares. Douglas Greene, another Director on SunOpta Inc. (USA) (NASDAQ:STKL)’s Board, snapped up 50,000 shares on the same day at a price of $7.02 per share. After the recent sizable purchase, the Director holds 200,543 shares. Last but not least, President and Chief Executive Officer Hendrik Jacobs bought 15,000 shares on Monday at $6.87 apiece and currently owns 34,638 shares.

Earlier this month, the company that operates businesses focused on organic, non-genetically modified foods reported its third quarter financial results, which were quite well received by the market. The company’s revenues decreased to $306.0 million from $307.9 million year-over-year, partially owing to its high exposure to fluctuations in foreign exchange rates. SunOpta reported earnings from continuing operations of $0.4 million, compared to a loss of $0.6 million reported for the third quarter of last year. 15 hedge funds monitored by Insider Monkey had positions in the company at the end of the June quarter, accumulating 23.80% of its outstanding common stock. According to a freshly-submitted 13D filing, Jason Karp’s Tourbillon Capital Partners holds 8.08 million shares of SunOpta Inc. (USA) (NASDAQ:STKL), accounting for 9.5% of its shares.

The second page of this daily insider trading article discusses the insider buys at Extended Stay America Inc. (NYSE:STAY) and Chesapeake Energy Corporation (NYSE:CHK).

An operator of company-branded hotels, Extended Stay America Inc. (NYSE:STAY) has witnessed two different insiders pile up shares this week. Director Richard F. Wallman reported the acquisition of 40,000 shares on Monday at a weighted average price of $16.96, half of which are now indirectly held via his spouse’s Simplified Employee Pension Plan (SEP) and Individual Retirement Account (IRA). Following the transaction, the Director holds a direct ownership stake of 112,234 shares. Chief Marketing Officer Tom Seddon bought 18,900 shares at a weighted average cost of $16.84, enlarging his overall holdings to 264,455 shares.

Extended Stay America operates 682 hotel properties in the United States and Canada, but recently announced an agreement to sell a portfolio of 53 hotel properties for $285.0 million, with the transaction expected to close during the current quarter. Extended Stay America has seen its shares drop by 11% since the beginning of the year, mainly thanks to the disappointing third quarter earnings report that it released earlier this month. The company’s revenue increased by 6.5% year-over-year to $360.5 million, whereas its net income dropped by 3.3% to $58.2 million. The 13 hedge funds tracked by our team that were invested in the company at the end of the second quarter amassed 48.90% of its outstanding shares. Billionaire John Paulson of Paulson & Co. owns 47.66 million shares of Extended Stay America Inc. (NYSE:STAY) as of September 30.

Lastly, we will investigate the insider buying activity at the second-largest producer of natural gas and the 12^th-largest producer of oil and natural gas liquids in the United States, Chesapeake Energy Corporation (NYSE:CHK). Chief Executive Officer Robert D. Lawler acquired a 50,000-share block on Tuesday for $5.88 each, boosting his overall position to 701,400 shares. Just recently, Sterne Agee CRT downgraded shares of Chesapeake to ‘Neutral’ from ‘Buy’ and removed its price target of $13, citing liquidity concerns. The shares of Chesapeake are down by 69% this year, but some billionaire investors are still confident in the long-term performance of the company.

At the end of September, Chesapeake cut its workforce by roughly 15% so as to reduce costs and align its workforce with the current oil and natural gas commodity prices. The company anticipates that it will operate only 14 rigs at the beginning of 2016, compared to an average of 28 rigs in 2015 and 65 rigs in 2014. A total of 33 hedge funds tracked by Insider Monkey owned the stock at the end of the second quarter. Carl Icahn of Icahn Capital LP, who owns 73.05 million shares of Chesapeake Energy Corporation (NYSE:CHK) as of September 30, said at the DealBook conference that took place earlier this month that he continues to believe in the long-term performance of oil companies and doesn’t mind them going down in the short-term (read more details).

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