It appears that the odds of the Fed raising interest rates at this month’s policy meeting have been reduced to 10%, ‘thanks’ to the weaker-than-expected jobs report released last Friday. Thus, most U.S stocks are bouncing back from the pullback suffered over the past two months. It is worth pointing out that the Standard and Poor’s 500 benchmark has been on an uptrend for the fifth consecutive trading session, which surely brings about optimism among most market participants. Even so, we should not overlook the possibility of more volatility and pain in the weeks ahead considering that the third-quarter earnings season is set to start shortly. In the meantime, some companies have seen strong insider buying lately, which yet again could hint to more optimism in the market. The following article will discuss the insider trading activity at AZZ Inc. (NYSE:AZZ), Celator Pharmaceuticals Inc. (NASDAQ:CPXX), and NuStar Energy L.P. (NYSE:NS). Hence, we will attempt to bring to light potential reasons that might have pushed insiders to buy stock of these 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. We have been forward testing the performance of these stock picks since the end of August 2012 and they have returned more than 118% over the ensuing 36 months, outperforming the S&P 500 Index by nearly 61 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.
To begin with, we will closely examine the insider buys at AZZ Inc. (NYSE:AZZ), a provider of galvanizing services, welding solutions, and specialty electrical equipment to global industrial markets. Paul Wesley Fehlman, who has been serving as Chief Financial Officer, Senior Vice President of Finance and Secretary since May 2014, reported the acquisition of 1,500 shares for $47.30 each last Friday. After the purchase, the executive currently holds a stake of 3,500 shares. At the same time, Chief Executive Officer and President Thomas E. Ferguson acquired 5,000 shares last week at a weighted average price of $47.32. He also received 5,000 shares from the conversion of restricted stock units (RSUs) into common stock, 1,867 of which were disposed of to satisfy tax withholding obligations. Following these transactions, Thomas Ferguson owns 15,633 shares. The AZZ stock has been riding an uptrend since late-January, advancing by over 10% year-to-date. The company’s management anticipates 2016 to be a “solid year”, which might explain the recent insider buying activity. Royce & Associates, founded by Chuck Royce, holds roughly 228,000 shares of AZZ Inc. (NYSE:AZZ) as of June 30.
