Sizable Insider Purchases At American Express (AXP), 2 Other Companies Amid Declining Insider Confidence

The Dow Jones Industrial Average closed 396.66 points in the green on Friday, pushing the benchmark into positive territory for the week. However, Friday’s gains did very little to overshadow the terrible performance U.S. equities delivered in the first month of 2016. The Dow ended the month down by 5.5%, while the S&P 500 Index closed 5.1% in the red for the month. Last week’s insider buying slowed quite significantly relative to the previous week, whereas the volume of last week’s insider selling more than doubled week-over-week. The sharp increase in the ratio of insider selling to insider buying last week suggests that corporate insiders might have started to give in to the bearish views driving the stock market. In the meantime, there were several companies that witnessed large insider purchases last week at three finance-related companies. We will examine those trades as well as the recent performance of the companies in question.

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 (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.

To start with, American Express Company (NYSE:AXP) had an insider make a big purchase last week. According to a Form 4 filing, Director Ronald A. Williams bought 18,040 shares on Friday at a cost of $55.51 per share and currently owns 59,125 shares. The shares of the global services company are down by 23% thus far in 2016, turning the stock into the worst performer of the DJIA (Dow) benchmark. Just recently, the company reported its financial results for the fourth quarter of 2015 and full-year, which were not received very well by the market. American Express Company (NYSE:AXP)’s revenue net of interest expense for 2015 totaled $32.8 billion, down from $34.2 billion reported for 2014. Its net income reached $5.2 billion in 2015, compared to $5.9 billion reported for 2014.

It should be mentioned that the company’s co-brand and merchant acceptance agreements with Costco Wholesale Corporation (NASDAQ:COST) in the United States will expire in March 2016 and will not be renewed, which might have a further significant impact on the company’s top- and bottom-line results. The changing regulatory environment, the intensifying pressures on merchant fees and toughening competition has been shaping the payments industry in recent years, and American Express has suffered from the emergence of these factors. The company’s management anticipates posting earnings per share in the range of $5.40 to $5.70 for fiscal year 2016, while analysts expect an EPS figure of $5.36. Analysts’ estimates yield a forward price-to-earnings ratio of 9.96, which is visibly below the average of 15.89 for the S&P 500 firms and would be even lower if going by Costco’s estimates. A total of 52 hedge funds from our system had stakes in the company at the end of the third quarter, and had accumulated nearly 22% of its outstanding shares. Warren Buffett’s Berkshire Hathaway holds an ownership stake of 151.61 million shares of American Express Company (NYSE:AXP) as of September 30.

Let’s head to the following two pages of this insider trading article, where we reveal several insider purchases registered at Zions Bancorporation (NASDAQ:ZION) and Total System Services Inc. (NYSE:TSS).

Zions Bancorporation (NASDAQ:ZION) had not seen any insiders purchase shares since early 2013 until last week. Executive Vice President and Chief Financial Officer Paul E. Burdiss purchased 25,000 shares on Thursday at a weighted average price of $22.16, lifting his overall holding to 60,855 shares. This purchase comes after the financial services company, which is comprised of a pool of banks in select Western markets, released its fourth-quarter earnings report last Monday. It is important to note that the shares of Zions lost nearly 33% since the beginning of December through the aforementioned earnings announcement. It is highly likely that Zions’ insiders were restricted from buying shares prior to the earnings release, so the recent purchase clearly suggests that the market wrongly punished the stock in recent months.

During the second quarter of 2015, Zions revealed its plans to undergo a corporate restructuring, which is set to enhance the company’s profitability metrics. Zions intends to reach an efficiency ratio (which in general terms, is defined as expenses as a percentage of revenue) in the low 60’s for fiscal year 2016. Zions had an efficiency ratio of 69.8% for the fourth quarter of 2015. The stock is down by nearly 8% over the past 12 months and trades at a forward P/E multiple of 10.15, which might lure some investors to pour some cash into the company’s stock. 32 smart money investors tracked by Insider Monkey had positions in the company at the end of September, and held almost 10% of its shares. Ken Griffin’s Citadel Advisors LLC reported owning 3.99 million shares of Zions Bancorporation (NASDAQ:ZION) through its 13F for the third quarter.

Total System Services Inc. (NYSE:TSS) had four insiders purchase different-sized blocks of shares this past week. To begin with, Director James H. Blanchard acquired a 12,500-share block on Friday at prices that ranged from $40.00 to $40.02 per share. The Director currently holds a direct ownership stake of 72,564 shares. William M. Isaac, another member of the company’s Board of Directors, snapped up 5,200 shares on the same day at a price of $38.62 per share, increasing his total stake to 8,549 shares. 3,000 shares were also purchased by Director Connie D. McDaniel on the same day, lifting her holding to 6,349 shares. The 3,000-share block was acquired at $38.57 apiece. Last but not least, Director John T. Turner reported purchasing a 530-share stake on Friday, which is held by a living trust. The Director also holds a direct ownership stake of 12,950 units of common stock.

The exploding insider buying comes after the payment processor released its somewhat disappointing fourth-quarter earnings report and announced the acquisition of merchant solutions provider TransFirst from Vista Equity Partners for $2.35 billion. The all-cash deal will make TSS the sixth-largest U.S merchant acquirer by revenue; however, investors are worried about the financing of the deal and its effects on the company’s balance sheet. Standard & Poor’s Ratings Services lowered its corporate credit and debt ratings for TSS to BBB- from BBB+, citing increased leverage as a result of the aforementioned acquisition. The shares of TSS are 19% in the red year-to-date, but are up by 12% over the past year. The sentiment towards the stock among the elite investors that we track was very positive in the third quarter, as the number of funds with positions in the company climbed to 25 from 18 quarter-over-quarter. Alkeon Capital Management, founded by Panayotis Takis Sparaggis, acquired a 507,220-share stake in Total System Services Inc. (NYSE:TSS) during the July-to-September period.

Disclosure: None