The Insider Buying At These Companies May Represent Key Pieces Of The Investment Thesis Puzzle

Some believe that the recent broader market pullback was just a simple correction, and that the bull market is set to resume its course. Meanwhile, others tend to think that the third quarter earnings season will trigger another round of selloffs in the U.S stock markets, with results being predicted to disappoint. It seems almost impossible to accurately predict where the market is heading from here, as there are numerous forces driving it. However, some corporate insiders have been boosting their holdings lately, which may suggest that their companies hold bright future prospects. The Insider Monkey team pinpointed three companies with heavy insider buying activity that might offer useful insights concerning their outlook. The companies in question are represented by CONN’S Inc. (NASDAQ:CONN), Ampliphi Biosciences Corp (NYSEMKT:APHB), and Aeropostale Inc. (NYSE:ARO).

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 begin by examining the insider trades at CONN’S Inc. (NASDAQ:CONN), a specialty retailer of durable consumer goods. President and CEO Norman Miller reported the acquisition of 20,333 shares at an average purchase price of $24.89 on Monday. Following the completion of the transaction, the executive owns 90,214 shares. Furthermore, Douglas H. Martin, who has been serving as Director since 2003, reported purchasing a new stake of 12,000 shares at a price of $24.25 per share, which is owned by Roth IRA (i.e. Individual Retirement Arrangement). The Director also holds a direct ownership stake of 95,363 shares, while his children own 3,900 shares. Despite the fact that the shares of CONN’s have embarked on a steady downward trend since early-July, they are still 40% in the green year-to-date. However, it is hard to overlook the 38% loss incurred over the past three-month period. The company’s retail business has been doing great over the past few months, but its persistent credit issues have put great weight on the stock. Robert Pohly’s Samlyn Capital added a 1.46 million-share position in CONN’S Inc. (NASDAQ:CONN) to its portfolio during the second quarter.

Moving on to the next candidate, Ampliphi Biosciences Corp (NYSEMKT:APHB) saw three insiders buy stock this week. Independent Director Louis C. Drapeau purchased a new stake of 10,000 shares through multiple transactions at prices ranging from $4.26-to-$4.70. Wendy S. Johnson, Interim Chief Operating Officer and Director since September 2014, acquired a 1,000 share-stake at $4.43 per share. Lastly, the freshly-assigned Chief Executive Officer, Michael Scott Salka, purchased a new stake comprised of 4,200 shares for $4.75 each. The shares of the biotechnology company have lost half of their value since the beginning of the year, but seem to be bouncing back at the moment. As a matter of fact, the stock closed nearly 12% in the green on Wednesday, which might be an indicator that the stock is set to achieve its much-needed turnaround. It might also be the case that these directors and executives are betting on a potential turnaround as well. Similarly, their bullishness may also indicate that the company is on the right track when it comes to advancing its pre-clinical pipeline and is getting closer to the commercialization of its bacteriophage-based products.

Lastly, Aeropostale Inc. (NYSE:ARO)’s Director Karin Hirtler-Garvey reported the acquisition of 33,000 shares at a price of $0.58 per share, all of which are held by a trust fund for her child. After the recent acquisition, the trust fund holds 229,620 shares, 41,010 of which represent restricted shares that vest on March 26, 2016. The teen retailer has been struggling to lure customers to its shops, and has in turn also lost its charm among investors. Just recently, Aeropostale was warned by the New York Stock Exchange that it has six months to get its stock price above the $1 level in order to avoid delisting. The company may pursue a reverse stock split to solve this issue given that its struggling business would not allow it to meet NYSE’s requirements promptly. Most U.S.retailers have been adjusting their business models so as to survive in the highly-competitive market. Aeropostale has had a hard time generating strong sales lately, so quick changes need to be made so as to inject more dynamism into the stock and this insider purchase might hint to the fact that the retailer is set to rebound in the months or years ahead. Matt Sirovich and Jeremy Mindich’s Scopia Capital is the largest shareholder of Aeropostale Inc. (NYSE:ARO) within our database, holding 9.90 million shares as of June 30.

Disclosure: None