These Companies’ Insiders Buy More Shares Despite Growing Concerns About U.S. Economy

There was a threefold increase in both insider buying and selling activity last week, as trading windows for more and more insiders open after earnings releases. At the same time, last week’s ratio of insider selling over insider buying remained quite high, with insiders selling at least nine times more worth of stock than buying. According to fresh data revealed by the U.S. Department of Labor on Friday, U.S. employers added 151,000 jobs in January, after adding more than 250,000 for the previous three consecutive months. Some tend to question the strength of the U.S. economy following the freshly-revealed data, but it should still be remembered that companies tend to hire more ahead of winter holidays to tackle increased activity and demand. Hence, the recent jobs report is not as disappointing as many think it is, considering the challenging environment in the energy sector. Leaving macro data aside, the following article will discuss recent insider purchases reported by three companies’ insiders, which could point to some attractive long term bets.

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 investigation by exploring the insider trading behavior at United Bankshares Inc. (NASDAQ:UBSI). Director Peter A. Converse purchased 19,700 shares on Thursday at a weighted average cost of $33.99 and currently holds a direct ownership stake of 618,882 shares. J. Paul McNamara, another member of the company’s Board of Directors, snapped up 1,000 shares two days earlier at a price of $33.19 per share, all of which are held through a direct individual retirement account (IRA). After the recent purchase, the Director holds 1,329 shares through the direct IRA, along with an additional direct ownership stake of 55,540 shares. Financial stocks are performing worse than energy-related stocks so far in 2016, due to increasing worries about the state of the global economy, and United Bankshares Inc. (NASDAQ:UBSI) is no exception. The shares of the bank holding company have lost 8% year-to-date and are down 5% over the past 12-month period. But did this plunge make the stock more attractive to investors? Several valuation metrics suggest that United Bankshares is not an attractive investment in the financial sector. For instance, the stock trades at a forward price-to-earnings ratio of 15.72, which compares with the ratio of 10.7 for the Regional Banks industry. Just recently, the company reported earnings for 2015 of $138.0 million or $1.98 per diluted share, up from $129.9 million or $1.92 per diluted share for 2014. So it quite evident that the bottom-line growth achieved last year would not justify a high valuation. Matthew Lindenbaum’s Basswood Capital was among the seven hedge funds tracked by Insider Monkey that had stakes in United Bankshares Inc. (NASDAQ:UBSI) at the end of the third quarter, holding 180,165 shares, according to its last 13F filing.

The next page of this daily insider trading article discusses the recent insider activity witnessed at DST Systems Inc. (NYSE:DST) and Mack Cali Realty Corp (NYSE:CLI).

DST Systems Inc. (NYSE:DST) also saw a member of its Board of Directors purchase shares this past week. Director Charles E. Halderman acquired 5,000 units of common stock on Thursday at prices that ranged from $103.31 to $113.99 per unit and lifted his overall holding to 10,688 shares. The Director also holds an indirect ownership stake of 2,001 shares through Directors Deferred Fee Plan. The company utilizes proprietary software applications to offer information processing and servicing solutions to the asset management, brokerage, retirement, insurance, and healthcare markets. For instance, certain software applications enable customers to analyze and report their investors’ transactions. At the end of 2015, DST sealed an agreement to purchase full-service provider of specialized hedge fund administration services Kaufman Rossin Fund Services LLC for $95.0 million. This transaction is expected to close during the first quarter of 2016. DST shares are down nearly 11% thus far in 2016, sending them into negative territory for the past 12-month period. The company generated total revenues of $2.83 billion for 2015, up from $2.75 billion reported a year earlier. However, its diluted earnings per share dropped to $9.83 from $14.66 year-on-year. DST Systems also recently announced a quarterly cash dividend of $0.33 per share, which was up by $0.03 or 10%. To sum up, the stock appears to be relatively undervalued at the moment given that it trades at a forward P/E of 13.85, which compares to the average of 35.2 for application software companies and 15.87 for the companies included in the S&P 500 Index. Scopia Capital, founded by Matt Sirovich and Jeremy Mindich, acquired a stake of 1.11 million shares of DST Systems Inc. (NYSE:DST) during the July-September period.

Mack Cali Realty Corp (NYSE:CLI) has seen intensifying insider buying activity in recent months, so insiders surely anticipate positive developments at the company in the upcoming months. Executive Vice President and Chief Investment Officer Ricardo Cardoso purchased a 23,000-share block on Thursday at prices varying from $19.46 to $19.55 per share, and currently owns a stake of 35,000 shares. Mack Cali Realty is a real estate investment trust that provides leasing, management, construction and tenant-related services for its properties and other parties. The REIT owns or has interests in 274 properties as of September 30, which consist of 146 office and 109 flex properties, and 19 multi-family rental properties that comprise 5,644 residential units. The shares of the REIT are 20% in the red year-to-date, so it is not surprising that the CIO purchased shares last week given that no major firm-specific news or announcements surfaced so far in 2016. In September 2015, Mack Cali Realty revealed transformation plans to become a more concentrated owner of New Jersey Hudson River waterfront and transit-oriented office properties and a regional owner of luxury multi-family residential properties. Some of the company’s ten core office markets were weak throughout 2015 while others recovered and stabilized, as revealed by the company’s occupancy rates. 85.8% of the company’s operating commercial properties were leased at the end of September, as compared to 82.3% at the end of June 2015 and 83.7% at the end of September 2014. In mid-January, Stifel reiterated its ‘Buy’ rating on the stock and lifted its price target to $26 from $25. Jim Simons’ Renaissance Technologies reported owning 1.07 million shares of Mack Cali Realty Corp (NYSE:CLI) through its 13F for the September quarter.

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