Three Companies Witnessing Strong Insider Activity on the Buy Side

The S&P 500 Index inched higher on Tuesday, putting an end to its four-session losing streak. The S&P 500 gained 3.14 points on Tuesday, closing at 2,081.72. However, some believe that the six-week stock market rally might be followed by a transitory sell-off, but the current state of the U.S. stock markets is not alarming by any means. Meanwhile, some companies’ insiders have been busy purchasing more shares, which might point to their confidence in the future prospects and strong outlook of their companies. The Insider Monkey team pinned down three companies that have registered heavy insider buying activity, thus far this week, so let’s see what might have propelled insiders’ bullishness.

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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 102% over the ensuing 37 months, outperforming the S&P 500 Index by more than 53 percentage points (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.

Restaurant Brands International Inc. (NYSE:QSR) has seen strong insider trading activity on the buy side so far this trading week. Director Paul J. Fribourg snapped up 28,000 shares on Monday and 28,600 shares on Tuesday at prices in the range of $34.88-to-$35.77 per share, mounting up 102,945 shares. Director Carlos Alberto d. Sicupira reported the acquisition of a 196,000 share-stake on Monday at prices between $35.13 and $36.30 per share, which was actually acquired by Lobstertail Corporation. The Director is an indirect beneficial owner of equity interests in Lobstertail, but also holds a direct ownership stake of 47,695 shares. Earlier this month, John Anthony Lederer purchased a 20,000-share block at a weighted average price of $39.28, and currently holds 52,400 shares. At the end of October, the owner of Burger King and Tim Hortons reported its third-quarter financial results, which seem to have pleased the market. However, the stock lost 11% since the beginning of November, sliding into negative territory for the year. Restaurant Brands International Inc. (NYSE:QSR) received more attention from the hedge funds monitored by Insider Monkey during the second quarter, with the number of top money managers invested in the stock climbing to 37 from 31 quarter-on-quarter. Bill Ackman’s Pershing Square owned 38.00 million shares of Restaurant Brands International Inc. (NYSE:QSR) at the end of the June quarter.

Let’s head to the next page, where the insider buying activity at Costco Wholesale Corporation (NASDAQ:COST) and PNM Resources Inc. (NYSE:PNM) is discussed.

Earlier this week, Costco Wholesale Corporation (NASDAQ:COST) registered the first insider buy in more than five years. Director John W. Stanton purchased 10,000 shares on Tuesday at a weighted average price of $155.40, boosting his stake to 13,456 shares. The Director also owns an indirect ownership stake of 422 shares through the Stanton Family Trust. Let us remind you that the global retailer saw strong insider selling activity during October, so one should keep in mind the insider trading activity on both sides. The aforementioned insider acquisition might not be quite timely, considering that the shares of Costco are currently trading at a trailing P/E ratio of 29.13, which compares with 23.41 for the S&P 500 Index. At the beginning of November, Costco posted sluggish comparable monthly sales for October, which decreased 1% year-on-year. Even so, its net sales in October increased to $8.78 billion from $8.73 billion reported in the same month last year. Meanwhile, 44 hedge funds within our database had positions in the company at the end of the June quarter, amassing 2.60% of its outstanding shares. Warren Buffett’s Berkshire Hathaway held its position in Costco Wholesale Corporation (NASDAQ:COST) unchanged during the second quarter at 4.33 million shares.

Lastly, PNM Resources Inc. (NYSE:PNM) has seen one of its directors acquire shares thus far this week. Director Bruce W. Wilkinson reported acquiring 10,000 shares on Tuesday at a price of $27.88 per share. After the recent acquisition, the Director currently owns 33,301 shares. The shares of the energy holding company are slightly over 5% in the red year-to-date, after advancing 12% since the beginning of September. Several valuation metrics suggest that the stock has still more room to run in the upcoming months. To be more detailed on that, PNM’s shares are trading at a trailing P/E ratio of 17.85, noticeably below the ratio of the S&P 500. The company’s strong third-quarter financial performance led its management narrow the 2015 consolidated earnings guidance to the range of $1.56-to-$1.61 from the previous range of $1.50-to-$1.62. PNM Resources lost some of its charm among the hedge fund industry during the second quarter, as the number of money managers with stakes in the company decreased to 17 from 22 quarter-over-quarter. Israel Englander’s Millennium Management held a 1.55 million-share stake in PNM Resources Inc. (NYSE:PNM) on June 30.

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