Many tend to believe that the broader market selloff is already behind us and the market is anticipated to be driven merely by the financial figures disclosed during the third quarter earnings season in addition to the Federal Reserve’s decision on interest rates. In the meantime, most U.S equites have become more attractive as a result of the recent volatility, and some companies’ insiders have been busy boosting their holdings as a result. The Insider Monkey team identified three companies that had a large volume of insider buying activity recently, so this article will discuss what might have guided these companies’ insiders to acquire stock. The three companies in question are represented by Ferrellgas Partners L.P. (NYSE:FGP), OvaScience Inc. (NASDAQ:OVAS), and Dominion Midstream Partners LP (NYSE:DM).
Syda Productions / Shutterstock.com
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 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 off by looking into the insider trading activity at Ferrellgas Partners L.P. (NYSE:FGP), a supplier of propane in the United States. Director Daniel G. Kaye purchased 5,000 shares last Friday at $19.60 apiece and enlarged his holding to 25,000 shares in the process. Ferrellgas Partners has been growing its operations and activities over the past few years, which does not seem to be reflected in the company’s stock performance. The company acquired Sable Environmental LLC last year for $124.7 million, in an attempt to diversify into the midstream sector. Furthermore, Ferrellgas Partners pursued another M&A deal with the purpose of expanding its midstream business by acquiring Bridger Logistics LLC this June for $837.5 million. Even so, the shares of the propane retailer have lost more than 9% since the beginning of the year; hence, the Director might be buying shares with the belief that they are undervalued. Jim Simons’ Renaissance Technologies acquired a 193,000-share stake in Ferrellgas Partners L.P. (NYSE:FGP) during the June quarter.
