The Federal Open Market Committee is set to release its policy statement at 2 p.m. Thursday in Washington, which will disclose if there is to be a rate hike this week. Simultaneously, the Fed will release its quarterly economic projections as well, while Janet Yellen, the Fed’s chair, is scheduled to hold a press conference at 2.30 p.m. Today’s events will surely shed some light on the future course of the U.S economy and its underlying “true” strength. It appears that financial markets have calmed down since August’s turmoil, caused by concerns about a Chinese economic slowdown; the Dow Jones Industrial Average closed 140.10 points in the green on Wednesday, marking the second consecutive day on an uptrend. The U.S equities markets seem to be recovering and narrowing down the recent losses, while some corporate executives have started to acquire more shares of their companies in anticipation of big things ahead. The Insider Monkey team identified three companies that registered a high volume of insider buying this week, so this article will discuss the reasoning behind the insiders’ moves. These companies include: American Eagle Outfitters (NYSE:AEO), Newport Corp (NASDAQ:NEWP), and Francesca’s Holdings Corp (NASDAQ:FRAN).
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.
We will start off by examining the insider activity at American Eagle Outfitters (NYSE:AEO), which registered an unusual volume of insider buying on September 14. Jay L. Schottenstein, who serves as Chairman of American Eagle Outfitters, reported buying 500,000 shares at a weighted average price of $15.74 per share. After this recent sizable addition to his position, the executive holds a stake of 3.53 million shares. The apparel retailer’s stock performance has been impacted by the broader market pullback, as its shares have lost nearly 15% over the last one-month period. Rick Snyder, an analyst at Odeon Capital Group, suggests that the stock represents an attractive buying opportunity considering the supposed “denim cycle that’s trending upward”. Therefore, it might be the case that Mr. Schottenstein boosted his stake with the same thought in mind, so this stock is definitely worth investors’ attention at the moment. Chuck Royce’s Royce & Associates holds nearly 4.78 million shares of American Eagle Outfitters (NYSE:AEO), accounting for 0.34% of its portfolio.
