Noteworthy Clusters of Insider Buying Witnessed at XL Group plc (XL) and 2 Other Companies

Some retail investors track insider trading behavior as part of their broader stock selection and analysis process, and rightly so. Past research concludes that insider purchases tend to beat broader market benchmarks on aggregate. But the key word in this statement is “aggregate”, which means that a majority of purchases likely predict future share price appreciation, but not all. Nonetheless, there is a way to filter the most informative and predictive insider buying activity. First and foremost, retail investors should look for clusters of buying, which usually serve as more reliable bullish indicators than small, individual purchases. What’s more, investors should not blindly mimic insiders’ behavior (though this practice may yield impressive results over the long-term), but rather, should focus on pairing insider buying with a sound investment thesis. Insider Monkey processed dozens of Form 4 filings submitted with the SEC on Wednesday and stumbled upon three companies with clusters of insider buying.

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 imitating the 15 most popular small-cap stocks among hedge funds outperformed the market by nearly a percentage point per month between 1999 and 2012 (read more details here).

Four Different Executives at This Insurance and Reinsurance Company Bought Shares This Week

Let’s begin our discussion by having a look at the insider buying witnessed at XL Group plc (NYSE:XL), which has seen four different executives purchase shares this week. To start with, Chief Human Resources Officer Eileen G. Whelley bought 1,500 shares on Tuesday for $32.30 each, lifting her ownership to 16,966 shares. Paul David Brand, Chief Underwriting Officer for Insurance, purchased 11,300 shares on the same day at $32.01 apiece, which boosted his overall holding to 172,337 shares. Greg Hendrick, Chief Executive of Insurance Operations, snapped up 8,000 ordinary shares on Monday at a price of $32.43 per share, after which Mr. Hendrick owns 130,738 shares. Chief Financial Officer Peter R. Porrino also recently filed, to disclose the purchase of 15,300 shares on Monday at prices that ranged from $32.85 to $33.00 per share. Following the recent purchase, Mr. Porrino currently holds an ownership stake of 120,358 shares.

The shares of the global insurance and reinsurance company have dropped by 17% since the beginning of the year, partly owing to a seemingly disappointing first quarter earnings report released last week. XL Group plc (NYSE:XL)’s operating net income for the first quarter was $103.4 million, down from $194.4 million reported for the same quarter of the prior year. However, the 2016 figure includes roughly $55.0 million in integration costs related to the $4.1 billion cash-and-stock acquisition of Catlin Group Ltd, which was completed in May 2015, as well as $52.8 million in natural catastrophe losses versus the $14.7 million in catastrophe losses recognized a year ago.

In mid-February, analysts at Deutsche Bank downgraded the stock to ‘Sell’ from ‘Hold’ and cut their price target on it to $34 from $40, citing analyst hopes for improving loss ratios that may not materialize after all. Meanwhile, the stock is priced at 8.8-times expected earnings, significantly below the forward P/E multiple of 12.7 for the property and casualty insurance sector. London-based LMR Partners, founded by Ben Levine, Andrew Manuel and Stefan Renold, acquired a new stake of 24,768 shares of XL Group plc (NYSE:XL) during the March quarter.

The next two pages of this insider trading article will examine the clusters of insider buying registered at ARMOUR Residential REIT Inc. (NYSE:ARR) and Intersil Corp (NASDAQ:ISIL).

This REIT Had Top Executives Purchase Shares This Week

ARMOUR Residential REIT Inc. (NYSE:ARR) had some of its most influential executives purchase shares earlier this week. Scott J. Ulm, Co-Chief Executive Officer and Chief Investment Officer, bought 10,000 shares on Wednesday at prices between $19.82 and $19.86 per share, boosting his ownership to 58,032 shares. Moreover, Jeffrey J. Zimmer, Co-CEO and President, purchased a slightly larger stake of 15,000 shares on the same day, at prices that fell between $19.48 and $19.62 per share, which increased his stake to 52,946 shares.

ARMOUR Residential is a real estate investment trust (REIT) that invests in residential mortgage-backed securities issued or guaranteed by a United States Government-sponsored entity or guaranteed by the Government National Mortgage Administration. Precisely, the REIT earns interest income on Agency Securities based on their unpaid principal amounts and their contractual terms. In early April, the REIT announced the completion of its acquisition of JAVELIN Mortgage Investment Corp. through a second-step merger, with the shareholders of the remaining JAVELIN shares that were not purchased during the initial cash tender offer receiving $7.18 in cash per share.

ARMOUR Residential REIT paid a cash dividend of $0.27 per common share for April and plans to pay cash dividends of $0.22 per share for May and June. The current monthly cash dividend of $0.22 per share equates to an attractive dividend yield of 13.19%. The shares of the REIT are down by 18% in the past 52 weeks and are 8% in the red year-to-date. Jim Simons’ Renaissance Technologies had 927,800 shares of ARMOUR Residential REIT Inc. (NYSE:ARR) in its portfolio at the end of December.

Intersil Registered Massive Cluster of Insider Buying This Week

Intersil Corp (NASDAQ:ISIL) has also registered a cluster of insider buying this week, which involved three different executives. Roger Wendelken, Senior Vice President of Worldwide Sales, purchased 10,000 shares on Tuesday at $11.70 apiece, lifting his holding to 66,575 shares. President and Chief Executive Officer Necip Sayiner bought 22,000 shares according to a Wednesday filing, at a cost of $11.61 per share. Mr. Sayiner currently owns a stake of 593,331 shares. Last but not least, Richard D. Crowley Jr., Chief Financial Officer and Senior Vice President, purchased 700 shares on Monday, 2,800 shares on Tuesday, and 1,500 shares on Wednesday at a weighted average price of $11.68, boosting his ownership to 65,463 shares.

The provider of innovative power management and precision analog integrated circuits (ICs) has seen its market value decline by 9% this year, after it delivered a somewhat disappointing earnings report for the fiscal 2016 first quarter that ended April 1. The company’s revenue for the quarter was $129.3 million, 3.7% lower than the revenue generated for the same quarter of the previous fiscal year. The top-line figure decline was mainly driven by weakness in the demand environment from the industrial and infrastructure end market, as well as lower sales of certain low-margin consumer products. Nonetheless, Intersil’s management anticipates revenue from its industrial and infrastructure end market to increase sequentially, whereas revenue from the consumer and computing end market is anticipated to decline slightly in the fiscal second quarter.

Intersil shares are currently changing hands at around 15.5-times expected earnings, slightly above the forward P/E ratio of 14.2 for the semiconductors industry. There were 16 hedge funds tracked by Insider Monkey that were invested in Intersil Corp (NASDAQ:ISIL) at the end of 2015, with Royce & Associates, founded by Chuck Royce, owning 1.27 million shares as of December 31.

Disclosure: None