Surging Insider Buying Witnessed at These 4 Companies

According to a recent article published by Bloomberg, the ratio of insiders purchasing shares to insiders selling shares over the past 30-day period is the highest that it’s been in more than four years. The article says that 699 officers and directors purchased their companies’ stock in the past 30 days, compared to 828 insiders who sold shares over the same time span. Investors and analysts believe that this occurrence represents a real sign of confidence, and rightly so. At the end of the day, it is hard to believe that insiders would invest their capital in the equity markets without anticipating a decent return from their investments. However, individual investors monitoring insider trading behavior should remember that insiders tend to have a long investment horizon (think of this practice in terms of years, not months) and can afford some short-term volatility and downturn. With this in mind, the following article will discuss the insider buying activity witnessed at several struggling companies.

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.

Let’s begin our discussion by closely looking into the heavy insider buying at Plains GP Holdings LP (NYSE:PAGP). Chairman and Chief Executive Officer Greg L. Armstrong snapped up 1.00 million Class A shares on Wednesday at prices that ranged from $5.09 to $6.07 per share, boosting his overall holding to 1.20 million shares. Moreover, President and Chief Operating Officer Harry N. Pefanis acquired 20,000 Class A shares on the same day at a weighted average cost of $5.75 and currently owns 489,065 shares. Plains GP Holdings LP (NYSE:PAGP) is a publicly-traded entity that owns an interest in the general partner and incentive distribution rights of midstream energy master limited partnership Plains All American Pipeline L.P. (NYSE:PAA), which also witnessed heavy insider buying activity this week. Greg Armstrong, Chairman and CEO of Plains All American Pipeline as well, bought 158,066 shares of that company’s stock on Wednesday at prices varying from $15.13 to $16.50 and currently holds an ownership stake of 1.43 million shares.

Earlier this week, Credit Suisse reiterated its ‘Neutral’ rating on Plains All American Pipeline L.P. (NYSE:PAA) and cut its price target on the stock to $19 from $33, in addition to downgrading its rating on Plains GP Holdings LP (NYSE:PAGP) to ‘Neutral’ from ‘Outperform’ and trimming its price target on that stock to $8 from $14. The recent insider buying and price target cuts come after the midstream operator released its financial results for the fourth quarter and full 2015 year. The pipeline operator reported adjusted diluted earnings per share (EPS) of $0.38 on revenue of $5 billion for the fourth quarter, compared with EPS of $0.60 on revenue of $9.46 billion reported for the same period of the prior year. Ken Griffin’s Citadel Advisors LLC sold off its entire stake of 4.88 million shares of Plains GP Holdings LP (NYSE:PAGP) during the fourth quarter.

The next two pages of this daily insider trading article discuss the recent insider buying witnessed at Wyndham Worldwide Corporation (NYSE:WYN) and Hub Group Inc. (NASDAQ:HUBG).

Wyndham Worldwide Corporation (NYSE:WYN) saw three different insiders buy shares earlier this week. To begin with, Chairman, President and Chief Executive Officer Stephen P. Holmes acquired 25,000 shares on Wednesday at a weighted average price of $64.44, lifting his stake to 890,178 shares. Furthermore, Franz S. Hanning, Chief Executive Officer and President of Wyndham Vacation Ownership, reported purchasing 10,000 units of common stock on the same day at an average price of $64.91, which are held by a grantor retained annuity trust (GRAT). After the recent purchase, the GRAT holds a stake of 30,000 shares. The executive also holds a direct ownership stake of 26,241 shares, which does not include restricted stock units. Last but not least, Director James E. Buckman purchased 1,600 shares on Tuesday at $63.77 apiece and currently owns 5,998 shares (excluding deferred stock units and restricted stock units).

The shares of the provider of hospitality services and products are down by 27% over the past 12 months, but there are several nuances that point to a potential rebound in the upcoming months. The company recently reported revenue of $5.5 billion for 2015, which marked an increase of 5% year-over-year. At the same time, its reported net income reached $612 million or $5.14 per diluted share, compared to $529 million or $4.18 per diluted share reported for 2014. Most importantly, Wyndham’s management anticipates generating revenue in the range of $5.8 billion to $5.98 billion for 2016, which is above analysts’ expectations of $5.72 billion. Moreover, the majority of analysts and financial hubs covering the stock have ‘Buy’ ratings for the company, which is yet another reason for considering Wyndham as a potential investment. It should also be noted that the stock trades at a forward P/E multiple of 11.52, which is below the ratio of 15.87 for the S&P 500 Index. Last but not least, the company’s Board recently authorized an increase to its quarterly cash dividend, to $0.50 per share from $0.42. Iridian Asset Management, founded by David Cohen and Harold Levy, upped its position in Wyndham Worldwide Corporation (NYSE:WYN) by 1.31 million shares during the fourth quarter, to 6.88 million shares.

Hub Group Inc. (NASDAQ:HUBG) had one of the members of its Board of Directors purchase shares this week. Director Martin P. Slark purchased 10,000 Class A shares on Monday at a cost of $34.88 per share, lifting his overall holding to 90,893 shares. The freshly-upped holding includes 10,832 restricted stock units that are subject to vesting requirements.

The intermodal marketing company (IMC) and transportation provider has seen its stock surge by more than 19% since the beginning of February, thanks to the better-than-expected financial results it delivered for the fourth quarter, which were released on February 3. Even so, the stock is still down by about 7% over the past 12 months. Hub Group reported revenue of $3.53 billion for 2015, down from $3.57 billion reported for 2014. Nonetheless, the company’s bottom-line results improved year-over-year, with net income for 2015 increasing to $70.95 million from $51.56 million. Approximately 60% of the company’s revenue is generated from its IMC business, which arranges the movement of freight in containers and trailers over long distances, but management plans on finding further revenue streams by exploring additional service lines. Hub Group appears to be fairly valued at the moment if solely relying on its P/E ratios. For instance, the company has a forward P/E multiple of 15.13. According to a recent 13G filing, Ric Dillon’s Diamond Hill Capital owns 3.74 million shares of Hub Group Inc. (NASDAQ:HUBG), which make up 10.3% of the company’s outstanding shares.

Disclosure: None