These 3 Battered Stocks Witness Heavy Insider Buying

U.S equities inched lower on Monday and continue to sink today, as the plunge in crude oil prices and disappointing data coming out of China continues to weigh on the markets. Although the U.S economy is anticipated to get bigger this year, some analysts worry that slowing global economic growth could adversely impact the country in the medium term. Consequently, some investors are running away from equities at the moment, while others are transferring capital into more defensive corners of the market. Nonetheless, there is a camp of corporate insiders that ignores broader market concerns and heavily invests in stocks, particularly when others are fleeing. The Insider Monkey team identified three companies that had noteworthy insider buying activity last week, so let’s lay out those trades and discuss 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.

Let’s kick off our investigation with Air Products & Chemicals Inc. (NYSE:APD), which saw one of its top executives buy shares this week. Chairman, President and Chief Executive Officer Seifi Ghasemi purchased 50,000 shares on Monday at prices that ranged from $125.37 per share to $127.84 per share. The CEO currently holds an ownership stake of 314,865 units of common stock. The shares of the supplier of industrial gases and equipment, and specialty and intermediate chemicals are down by 11% over the past 12 months, but are trading in positive territory thus far in 2016. The freshly-released earnings report for the first quarter of fiscal year 2016 that ended December 31 helped push the stock into positive territory. The company reported sales of $2.36 billion for the quarter, which marked a decrease of 8% year-over-year. The company’s underlying sales growth of 2% was offset by negative currency impact and lower contractual pass-through to customers. Despite the substantial decrease in the top-line figure, Air Products & Chemicals Inc. (NYSE:APD)’s net income increased by 12% year-over-year to $363.6 million.

The question some investors may ask at the moment is whether the stock represents an attractive investment opportunity. Analysts at UBS believe that Air Products & Chemicals is a defensive stock that can keep delivering double-digit EPS growth despite facing a slowing global economy. UBS has a ‘Buy’ rating on the stock, with a price target of $151. Nonetheless, investors should not overlook the company’s price-to-earnings multiples, which do not show too much upside, even factoring in that expected growth. For instance, the stock trades at a forward P/E multiple of 16.18, which is slightly above the ratio of 15.89 for the S&P 500 Index. Bill Ackman of Pershing Square was the largest equity holder of Air Products & Chemicals Inc. (NYSE:APD) within our database at the end of the third quarter, with a stake of 20.55 million shares.

The next two pages of this daily insider trading article reveal the noteworthy insider purchases witnessed at Huntington Bancshares Incorporated (NASDAQ:HBAN) and Polaris Industries Inc. (NYSE:PII).

Huntington Bancshares Incorporated (NASDAQ:HBAN) had four different insiders purchase shares on Monday. To begin with, Chief Executive Officer and President Stephen D. Steinour snapped up 100,000 shares earlier this week at prices varying from $8.54 to $8.59 per share, boosting his overall holding to 3.09 million shares. Director Michael J. Endres bought 30,000 shares for $8.69 each and currently holds a direct ownership stake of 240,607 shares. James E. Dunlap, Regional Banking Group President, acquired 1,000 shares at a weighted average cost of $8.56 and owns 304,760 shares after the recent purchase. Last but not least, Howell D. McCullough III, Chief Financial Officer and Senior Executive Vice President, reported purchasing 25,000 units of common stock on Monday at $8.60 apiece. Following the recent purchase, the CFO currently owns a stake of 260,045 shares.

The exploding insider buying activity comes after the multi-state diversified regional bank holding company announced the acquisition of Ohio-based Firstmerit Corp (NASDAQ:FMER) in a cash-and-stock deal. The shares of Huntington plummeted on the announcement, but have gradually recovered since then. The stock is 16% in the red for the past 12 months, after having dropped by nearly 22% in 2016. Pursuant to the merger agreement, each FirstMerit shareholder will receive 1.72 shares of Huntington and $5.00 in cash for each share of FirstMerit owned. FirstMerit has 367 locations in Ohio, Michigan, Pennsylvania, Wisconsin and Illinois, with the acquisition poised to make Huntington the largest bank in Ohio by market share of deposits. Moreover, the stock trades at a forward P/E multiple of 8.91, so one can conclude that the recent insider purchases reported by Huntington’s insiders appear to be well-timed transactions that could generate attractive returns. A total of 20 hedge funds monitored by our team had stakes in the company at the end of the third quarter. David Harding’s Winton Capital Management reported ownership of 2.79 million shares of Huntington Bancshares Incorporated (NASDAQ:HBAN) through its 13F for the third quarter.

Polaris Industries Inc. (NYSE:PII) had not witnessed any insider buying since early 2009 until last week, which should definitely attract some attention from investors. Director Lawrence D. Kingsley purchased a 6,925-share stake on Friday at a weighted average price of $72. However, it should be noted that the American manufacturer of snowmobiles, ATV, and neighborhood electric vehicles appointed Lawrence Kingsley to its Board of Directors on January 28, so his recent purchase might not necessarily point to his confidence in the company’s near-term performance, but rather as a sign of solidarity with the board and shareholders.

The off-road vehicle maker recently released its fourth-quarter earnings report, which revealed that it registered a quarterly profit decline for the first time in the past five years or so. Polaris Industries reported net income of $455.4 million for 2015, compared to $454.0 million reported for 2014. The company generated sales of $4.72 billion in 2015, up from $4.48 billion in 2014. Just recently, RBC Capital Markets reiterated its ‘Outperform’ rating on the stock but lowered its price target on it to $80 from $88, presumably because of the negative quarterly bottom-line growth. The shares of Polaris have lost 48% over the past one-year period, which has pushed the company’s valuation to attractive levels. The stock trades at a forward P/E of 10.51, so investors might find the company quite attractive relative to the broader market. One should also consider the fact that Polaris managed to expand its market share across all of its businesses in 2015, and also managed to generate both bottom- and top-line growth for six straight years. 20 smart money investors had stakes in the company at the end of the September quarter, amassing approximately 5% of its outstanding shares. Ken Griffin’s Citadel Advisors LLC cut its stake in Polaris Industries Inc. (NYSE:PII) by 63% during the July-to-September period to roughly 752,000 shares.

Disclosure: None