The recent spike in volatility in the past few weeks has seen several stocks correcting significantly and a large number of them trading around their 52-week lows. Although buying spurts have emerged whenever the S&P 500 has broken down below the 1,900 mark, it hasn’t been sufficient to take the index past 2,000, a mark above which it has traded throughout the year before falling below in mid-August. At times like these, when insiders step in and buy the shares of their own companies, it really helps to restore investors’ confidence in the stock. Keeping that in mind, let’s take a closer look at three stocks that have recently seen strong insider buying activity. They are Dollar Tree, Inc. (NASDAQ:DLTR), Chemours Co (NYSE:CC), and Franklin Street Properties Corp. (NYSEMKT:FSP).
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 36 months, outperforming the S&P 500 Index by over 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 with discount retailer Dollar Tree, Inc. (NASDAQ:DLTR). On September 10, Conrad M. Hall, an Independent Director of the company bought 5,000 shares at a weighted average price of $66.20. Mr. Hall now owns 45,000 shares of Dollar Tree, Inc. (NASDAQ:DLTR) directly and 5,000 shares indirectly. Although shares of the company rose by 10% during the first three months of the year, they remained flat during the second quarter and the recent declines in the market have now caused them to trade down by 6.56% year-to-date. Analysts at Credit Suisse downgraded the stock to ‘Underperform’ from ‘Neutral’ on September 8, and also reduced their price target to $60 from $70, which at current market price represents a potential 9.0% decline. Among the funds we cover, Charles Akre‘s Akre Capital Management was the largest shareholder of the company at the end of June, owning over 3.5 million shares.
Moving on, Mark Newman, who serves as a Senior Vice President and Chief Financial Officer at Chemours Co (NYSE:CC), bought 5,500 shares of the company on September 9 at a weighted average price of $9.37 and now owns a total of 114,109 shares of Chemours. Chemours Co debuted on the secondary market on June 19 after its spin-off from E I Du Pont De Nemours And Co (NYSE:DD) was completed. Investors of the company have been hit by a double whammy since, as not only has Chemours Co (NYSE:CC)’s stock already fallen by more than 55% since its debut, but the company has also recently slashed its quarterly dividend to $0.03 per share from $0.55 per share. Billionaire investor Israel Englander‘s Millennium Management reported in its latest 13F filing that it owned 120,701 shares of Chemours as of June 30.
Finally, let’s take a look at the insider buying in Massachusetts-based Real Estate Investment Trust (REIT) Franklin Street Properties Corp. (NYSEMKT:FSP). On September 9, John N Burke acquired 2,800 shares of the REIT at a weighted average price of $10.33 and now owns 15,214 shares. The same day that Mr. Burke bought those shares, analysts at BMO Capital Markets initiated coverage on the stock with a ‘Market Perform’ rating and an $11 price target. Owing to the 17.84% year-to-date decline the shares of Franklin Street Properties Corp. (NYSEMKT:FSP) have had, the $0.19 per share quarterly dividend it pays currently translates into a lucrative annual dividend yield of 7.34%. Jim Simons‘ Renaissance Technologies was one of the hedge funds that increased its stake in the REIT, during the April-June period, by 30%; it held slightly below 600,000 shares at the end of June.
Disclosure: None
