Although the U.S. equity markets have calmed down after the extreme volatility they exhibited during the final two weeks of August, this could very well be the calm before the storm, since most market participants believe that the Fed will make a decision on interest rate hikes very soon. Regardless of whether the Fed hikes rates this time around or again gives it a pass, insiders at some companies believe that their companies will do well in the future and have displayed this conviction by buying shares of their respective firms recently. In this article we are going to look closely at three such companies, namely Clean Energy Fuels Corp (NASDAQ:CLNE), Apigee Corp (NASDAQ:APIC), and Dominion Midstream Partners LP (NYSE:DM) and dissect the recent insider buying activity in them.
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 begin with the insider buying in Clean Energy Fuels Corp (NASDAQ:CLNE). Yesterday, Stephen Scully, an Independent Director of the company bought 15,000 shares at a weighted average price of $4.03 per share and now owns a total of 30,000 shares of the company indirectly. After nearly doubling during the first four months of the year, shares of the natural gas supplier made a sharp U-turn and are currently trading down by 19% year-to-date. On August 5, Clean Energy Fuels Corp (NASDAQ:CLNE) reported worse-than-expected numbers for the second quarter, declaring a loss of $0.29 per share on revenue of $86.90 million compared to the loss of $0.27 per share on revenue of $100.80 million that analysts were expecting. With 481,197 shares at the end of June, billionaire David E. Shaw‘s hedge fund D.E. Shaw was the largest shareholder of the company among the hedge funds we track.
Proceeding to the insider buying in Apigee Corp (NASDAQ:APIC), Tim M. Wan, who serves as the Chief Financial Officer of the company, bought 4,000 shares yesterday at a weighted average price of $8.00 per share. Since this was Mr. Wan’s first reported transaction related to the company’s stock, his aggregate holding currently stands at said 4,000 shares. After making its public market debut in April of this year, shares of Apigee Corp (NASDAQ:APIC) have had a gradual decline and currently trade down by 54% from its IPO price of $17 per share. On September 10, analysts at Pacific Crest reiterated their ‘Overweight’ rating on the stock, but reduced their price target to $18 from $21, which at current market price represents a potential upside of 130%. Dan Loeb‘s Third Point reported in a regulatory filing that it owned over 3.16 million shares or 10.6% of the outstanding shares of the company at the end of June.
Finally, the Chairman and CEO of Dominion Midstream Partners LP (NYSE:DM), Thomas F. Farrell II, acquired 10,000 shares of the company yesterday at a weighted average price of $29.96. Accounting for this transaction, Mr. Farrell now owns 59,900 shares of the company indirectly through Farrell Investments, LLC and 10,000 shares directly. Dominion Midstream Partners LP (NYSE:DM) made its debut in the secondary markets in October 2014 through an IPO priced at $21 per share. Although the company’s shares are still trading up by 44% from that IPO debut price, on a year-to-date basis they are down by 20.5%. Dominion Midstream Partners LP currently pays a quarterly dividend of $0.19, which at current market price translates into an annual dividend yield of 2.47%. On September 11, analysts at Goldman Sachs downgraded the stock to ‘Sell’ from ‘Neutral’ and also lowered their price target on it to $34 from $39. Ken Griffin‘s Citadel Investment Group initiated a stake in the company by purchasing 1,779 shares during the second quarter. The stock was very lightly owned in our database, with just five investors holding 0.50% of the company’s outstanding shares.
Disclosure: None
