Three Stocks With Explosive Insider Buying Activity

Numerous studies conducted by reputable researchers and professors have concluded that non-insiders can achieve enhanced returns by tracking insider trading activity. Although most of those studies could be considered outdated, the reasoning behind tracking insider trading activity remains as strong and durable today. As the well-known investment guru Peter Lynch once said: “Insiders might sell their shares for any number of reasons, but they buy them for only one: they think the price will rise”. Indeed, this rule or statement still applies today, as it is hard to believe that insiders are investing their hard-earned money in their own company’s stock, particularly as it does nothing to help the diversity of their portfolio, unless they anticipate price appreciation. For that reason, this article primarily focuses on discussing several noteworthy insider purchases registered at three U.S-listed 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.

So let’s start our discussion by examining the insider buying behavior witnessed at Stein Mart Inc. (NASDAQ:SMRT). Chief Executive Officer Jay Stein purchased 50,000 shares on Tuesday and 60,000 shares on Wednesday at prices that ranged from $6.24 per share to $6.50 per share. After the recent purchases, the CEO holds a direct ownership stake of 611,799 shares, along with an additional several million shares held indirectly. The shares of the discount retailer have declined by 57% over the past year, leading to the company appearing to be relatively cheap at the moment. For instance, the stock trades at a forward price-to-earnings ratio of 8.67, which is significantly below the average of 15.75 for the S&P 500 companies.

Stein Mart Inc. (NASDAQ:SMRT) reported total sales of $965.77 million for the 39 weeks that ended October 31, compared to $930.68 million reported for the same period a year ago. The increase in sales was mainly achieved due to a higher number of transactions and greater average unit retail prices. The company’s same-store sales for December came in higher-than-expected, yet the stock has continued to slide. Stein Mart’s comparable store sales for the five-week period that ended January 2 grew by 1.8% year-over-year, compared with the a 1.7% decrease estimated by Retail Metrics, so the company appears to be executing well. The number of smart money investors tracked by Insider Monkey with equity positions in the retailer dropped to 13 from 16 during the third quarter. Royce & Associates, founded by Chuck Royce, lifted its position in Stein Mart Inc. (NASDAQ:SMRT) by roughly 16% to 4.74 million shares during the quarter.

The second page of this daily insider trading article reveals the insider purchases registered at Streamline Health Solutions Inc. (NASDAQ:STRM) and A Schulman Inc. (NASDAQ:SHLM).

Streamline Health Solutions Inc. (NASDAQ:STRM) had seven different insiders make big purchases this past week, so let’s see what might have triggered the wave of insider buying. To begin with, President and Chief Executive Officer David W. Sides purchased 170,000 shares this week at prices that ranged from $1.48 to $1.74 per share, which are held in an Individual Retirement Account. The CEO also holds a direct ownership stake of 5,000 shares, along with an additional 50,000 shares held through a trust fund. Senior Vice President and Chief Marketing Officer Randy Salisbury snapped up 30,000 shares this week at a weighted average cost of $1.51, lifting his overall holding to 55,788 shares. Furthermore, Director Jonathan R. Phillips bought 17,849 shares on Monday and 15,000 shares on Tuesday at prices that fell between $1.42 and $1.68 per share, and currently owns 498,205 shares. Judith E. Starkey, a Member on the company’s Board, acquired 50,000 shares on Tuesday at a weighted average price of $1.70 and currently holds 93,132 shares. Director Michael K. Kaplan bought 35,000 shares on Monday at prices ranging from $1.47 to $1.50 per share, which are held by a trust fund and Individual Retirement Account. The Director also owns a direct ownership stake of 85,514 shares. There were two other executives who purchased a somewhat lower amount of common stock.

The shares of the provider of data-driven solutions for healthcare providers have dropped by 59% over the past year. However, the company plans to allocate more capital to its sales resources, which could eventually drive up revenue growth, thanks to its improving financial health. James Dondero’s Highland Capital Management holds a 1.23 million-share position in Streamline Health Solutions Inc. (NASDAQ:STRM) as of September 30.

A Schulman Inc. (NASDAQ:SHLM) saw two different insiders purchase shares this week. Director Irvin D. Reid bought 5,000 shares on Tuesday at a weighted average price of $22.16, boosting his overall holding to 21,003 shares. Heinrich Lingnau-Schneider, Senior Vice President and General Manager of EMEA Region, acquired a 4,000-share block on the same day at prices between $23.57 and $23.83 per share, and currently owns 12,761 shares.

The shares of the supplier of high-performance plastics and resins plummeted significantly following the release of the company’s fiscal year 2016 first-quarter financial results earlier this month. A Schulman reported net income per share of $0.18 for the quarter, down from $0.45 reported a year ago. The bottom-line figure was impacted by transitory costs associated with an ongoing investigation on quality reporting issues that were identified at two manufacturing facilities back in August. The company’s net sales for the three-month period that ended November 30 totaled $649.2 million, up from $615.1 million reported a year ago. The currency exchange translations had a negative impact on the company’s top-line growth, while the increase in revenue was mainly attributable to a recent acquisition. In the meantime, the stock trades at a very cheap forward P/E ratio of 6.96, so Schulman’s shares might embark on an uptrend in the future should those internal issues be resolved. Mariko Gordon’s Daruma Asset Management reported ownership of 1.59 million shares of A Schulman Inc. (NASDAQ:SHLM) through its 13F for the September quarter.

Disclosure: None