Three Struggling Companies Witnessed Insider Buying In Final Trading Weeks of 2015

The U.S. equities had a disappointing year in terms of stock performance last year, with the S&P 500 Index closing 0.7% in the red for the year. The benchmark suffered its first calendar-year decline since the financial crisis of 2008, after generating double-digit gains during the past three years. Six of the ten S&P 500 sectors closed in negative territory, partially due to the sustained decline in commodity prices. Nonetheless, some insiders have been purchasing their companies’ shares lately, which could somewhat suggest that those companies might have a relatively strong 2016 in terms of both financial and stock performance. The Insider Monkey team scanned the insider buying activity reported during the last trading week of 2015 and pinpointed three companies with noteworthy insider buys. Hence, this article discusses the insider trading behavior at those companies and their recent performance.

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 38 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.

To begin with, Chimerix Inc. (NASDAQ:CMRX) had two insiders make big purchases last week. Director Clarence Patrick Machado snapped up a new stake of 10,000 shares last Tuesday at prices that ranged from $7.08-to-$7.09 per share. Furthermore, Director Ernest Mario bought 125,000 shares on the same day at prices that fell between $6.92 and $7.21, enlarging his overall holding to 262,637 shares. On December 28, the biopharmaceutical company revealed that its Phase 3 SUPPRESS trial of brincidofovir failed to demonstrate the efficacy of this drug in preventing the reactivation of cytomegalovirus (CMV) infections in patients undergoing hematopoietic stem cell transplants. The shares of Chimerix Inc. (NASDAQ:CMRX) have lost nearly 75% since the announcement and are down 78% for 2015. Even so, the company intends to continue the trials testing brincidofovir in serious adenovirus infections and smallpox, claiming that Chimerix would “remain committed to this brincidofovir program and its potential”. Therefore, the aforementioned insider purchases show insiders’ confidence in the potential of this drug candidate. The number of hedge funds from our database invested in the biopharmaceutical company decreased to 17 from 21 during the third quarter. Steven Cohen’s Point72 Asset Management recently reported purchasing a 2.45 million-share stake in Chimerix Inc. (NASDAQ:CMRX), which accounts for 5.3% of the company’s outstanding common stock (read more details).

Let’s head to the second page of this daily insider trading article, where we discuss the insider buys reported at GigaMedia Limited (NASDAQ:GIGM) and Micron Technology Inc. (NASDAQ:MU).

GigaMedia Limited (NASDAQ:GIGM) had a very influential insider make purchases in the past two trading weeks. Chief Executive Officer Collin Hwang purchased 173,523 shares during the period between December 18 and December 23 at a weighted average price of $2.98. After the recent purchases, the CEO holds an ownership stake of 636,833 shares, which accounts for 5.76% of the company’s outstanding shares. GigaMedia Limited is a diversified growth company that has online game operations in Taiwan, Hong Kong and Macau and a cloud computing software and services business in Taipei. The company owns online game portal FunTown, which primarily focuses on the high-growth mobile and browser-based casual games market in Asia. GigaMedia also owns a majority interest in developer and publisher of mobile games and apps FingerRockz. It is anticipated that consolidation in the game industry will intensify in the upcoming years, as the mobile gaming market keeps expanding. Thus, every player within this industry may deserve some attention from individual investors and other stock market participants. Meanwhile, the stock is down 33% over the past one-year period and is up by nearly 32% since the company completed a 1-for-5 reverse stock split. Ken Griffin’s Citadel Advisors LLC acquired a 46,705-share stake in GigaMedia Limited (NASDAQ:GIGM) during the September quarter.

Last but not least, Micron Technology Inc. (NASDAQ:MU) had one of its executives purchase shares during the two holiday-shortened trading weeks. Chief Financial Officer and Vice President-Finance Ernest E. Maddock bought a 10,000 share-block on December 24 at $14.32 apiece, boosting his overall stake to 113,256 shares. The memory chip producer has seen its shares decline 59% in 2015, mainly owing to the struggling DRAM market. The company has experienced substantial decreases in average selling prices for its memory products in recent years, and these prices have dropped below manufacturing costs in some periods. Micron’s total net sales for 2015 reached $16.19 billion, down from $16.36 billion reported for 2014. This decrease was mainly attributable to a decrease in DRAM sales, as the weight of declining average selling prices outpaced the increase in gigabit sales volumes. Nevertheless, the company has a relatively cheap valuation at the moment, based on its trailing and forward price-to-earnings ratios. The stock trades at a trailing P/E of 5.76 (the trailing P/E for the S&P 500 totals 22.95) and a forward P/E of 9.48 (the S&P 500’s forward P/E stands at 17.44). A total of 71 smart money investors from our database had stakes in the company at the end of the third quarter, amassing 11.50% of its shares. David Einhorn’s Greenlight Capital cut its stake in Micron Technology Inc. (NASDAQ:MU) by 68% during the July-to-September period to 12.37 million shares.

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