These 3 Companies’ Insiders Ignore Wall Street’s Doomsayers

The S&P 500 Index has lost nearly 7% since the beginning of the year and there aren’t any major catalysts that could stop the sell-off. Investors had hoped that the fourth-quarter earnings season would serve as a positive catalyst for equities, but their hopes have not materialized just yet. Slightly less than half of S&P 500 companies have already released their earnings reports, while the blended earnings decline for the fourth quarter totals 5.8%. This compares to the decline of 4.7% anticipated before the kick-off of the earnings season. Nonetheless, insiders at several companies have been piling up more shares in recent weeks, which could somewhat suggest that the fundamentals of their companies’ businesses are not so bad as outsiders think. At the end of the day, corporate insiders are the ones who have a better understanding about fundamentals at the business level. With that in mind, the following article will discuss the insider buying witnessed at three companies and will take a look at the recent performance of those 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 start off with Seagate Technology PLC (NASDAQ:STX), which had not seen any insider buying since the end of 2013 until this week. To begin with, Philip G. Brace, President of Cloud Systems and Electronics Solutions, snapped up 5,000 shares on Tuesday at a price of $29.1 per share and lifted his stake to 14,930 shares. Moreover, Chairman and Chief Executive Officer Stephen J. Luczo bought 200,000 shares on the same day at prices ranging from $28.28 to $30.79 per share, all of which are held via a trust fund called Stephen J. Luczo Revocable Trust. After the recent purchase, the CEO’s trust fund holds a stake of 1.63 million shares.

The provider of electronic data storage technology and solutions has recently reported its financial results for the fiscal second-quarter, posting earnings per share of $0.82 on revenue of $3.0 billion. This compares with the EPS of $1.35 on revenue of $3.70 billion reported for the same period of the prior year. According to Thomson Reuters data, analysts had anticipated EPS of $0.71 on revenue of $2.94 billion for the quarter. Seagate Technology PLC (NASDAQ:STX)’s shares are down by 52% over the past 12-month period and seem to be bottoming-out at the moment, thanks to the freshly-released better-than-expected results. As for the reason why the maker of hard disk drives has been struggling in recent quarters, the softening demand for personal computing devices stands behind the company’s weak performance. The freshly-published earnings report and the company’s price-to-earnings multiples might point to a rebound for Seagate in the upcoming quarters. The stock trades at a forward P/E multiple of 7.33, which is substantially below the 15.89 average for the S&P 500. A total of 31 ‘hedgies’ from our database had stakes in Seagate at the end of the third quarter, hoarding nearly 4% of the company’s outstanding common stock. David Harding’s Winton Capital Management reported owning 2.66 million shares of Seagate Technology PLC (NASDAQ:STX) through its 13F for the third quarter.

The next page of this article discusses the insider purchases witnessed at Cullen/Frost Bankers Inc. (NYSE:CFR) and Talmer Bancorp Inc. (NASDAQ:TLMR).

Cullen/Frost Bankers Inc. (NYSE:CFR) is another company that registered a sizable insider purchase in the past several days. Director Carlos E. Alvarez purchased 40,000 shares on Friday at prices that fell between $47.00 and $47.40 per share, boosting his overall holding to 370,000 shares. Just recently, the financial and bank holding company reported its financial results for the fourth quarter of 2015, which were positively received by the market despite missing analysts’ expectations on earnings. It should be noted that Cullen/Frost Bankers has high exposure to the energy sector, which has adversely impacted its financial performance in 2015. The company did not have concentrations of loans related to any industry of more than 10% of total loans except for the energy industry; energy loans accounted for 15.7% of the company’s loans on September 30. Furthermore, the company had potential problem loans with eight borrowers on September 30, while nearly 41% of the total outstanding balance of potential problem loans was related to two borrowers in the energy industry.

Going back to the freshly-released earnings report, Cullen/Frost reported net income of $56.2 million for the fourth quarter, as compared to earnings of $70.7 million reported a year ago. Even so, the company’s full-year net income increased 0.5% year-over-year to $271.3 million. The shares of Cullen/Frost have lost 31% over the past year, thus lowering the company’s valuation to attractive levels. The stock is trading at a forward P/E multiple of 9.30, which compares with the average forward P/E of 10.7 for the regional banks industry. The number of hedge funds tracked by Insider Monkey with positions in the company climbed to 15 from 11 during the third quarter. Ken Fisher’s Fisher Asset Management owns 239,859 shares of Cullen/Frost Bankers Inc. (NYSE:CFR) as of the end of September, 2015.

Talmer Bancorp Inc. (NASDAQ:TLMR) has seen four different insiders purchase shares so far this week. To start with, Director Barbara J. Mahone purchased 5,000 shares on Tuesday at a weighted average cost of $16.22 and currently holds a stake of 40,800 shares. Let’s move on to the insider purchases reported by the heavyweights of the company’s corporate structure. President and Chief Executive Officer David T. Provost snapped up 30,500 shares on the same day at prices varying from $16.06 to $16.32 per share, enlarging his overall holding to 638,393 shares. Chairman Gary Torgow also bought a 30,500-share block on Tuesday at a weighted average price of $16.23. After the recent purchase, the Chairman owns 639,340 units of common stock. An additional 64,800 shares were purchased by Chief Financial Officer Dennis L. Klaeser, who currently holds an ownership stake of 153,350 shares. The sizable block of shares was purchased at prices in the range of $15.99 to $16.30 per share.

Just recently, bank holding company Talmer Bancorp and Chemical Financial Corporation (NASDAQ:CHFC) announced a cash-and-stock deal that will create one of the largest community banks in the Midwest. Under the terms of the merger agreement, each shareholder of Talmer will receive 0.4725 shares of Chemical Financial common stock and $1.61 per share in cash. The discrepancy between the current share price of Talmer and the deal price amounts to roughly $0.40, so insiders are either attempting to gain on this discrepancy or seeking to show their confidence that the freshly-announced merger deal represents a beneficial move. The transaction is expected to close in the second half of this year. Richard Mashaal’s Rima Senvest Management holds an ownership stake of 2.08 million shares of Talmer Bancorp Inc. (NASDAQ:TLMR) as of the end of the September quarter.

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