United Continental Holdings Inc. (UAL)’s CEO Buys $1 million Worth of Stock; Two Other Companies with Insider Buying

Last week’s overall dollar volume of insider buying was even lower than the extremely low volume registered in the previous week. Meanwhile, the dollar volume of insider selling increased week-over-weak, which sent the ratio of insider selling over insider buying through the roof. This rather worrisome insider trading behavior should not serve as a major reason for concern among investors considering the thickness of the ongoing first-quarter earnings season. But why would the dollar volume of insider selling be 74 times higher than the volume of insider buying when most companies have blackout periods in place (these blackout periods restrict insiders from trading securities around earnings announcements)? The primary explanation is that a high portion of insider selling is conducted under pre-arranged trading plans, so the overall volume of insider sales on the open market should be close to the volume of insider buying. Having this in mind, the following article will discuss the insider buying recently witnessed at three companies.

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 imitating 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 CEO of This Airline Bought $1 Million Worth of Stock Last Week

Let’s begin our discussion by looking into the insider buying at United Continental Holdings Inc. (NYSE:UAL), which had its top executive buy a sizable block of shares last week. Chief Executive Officer and President Oscar Munoz purchased 19,800 shares on Friday at prices that ranged from $50.50 to $50.55 per share, boosting his overall holding to 163,675 shares. The $1 million-transaction has received a lot of attention from the media, as the transaction is one of the most voluminous insider purchases at the company since early 2014.

The CEO’s purchase comes after the airline revealed lower-than-expected outlook on Revenue per Available Seat Mile (RASM) for the current quarter. Soon after the release of the first-quarter earnings report, analysts at Sterne Agee downgraded United Continental Holdings Inc. (NYSE:UAL) to ‘Neutral’ from ‘Buy’ and lowered the price target on the stock to $56 from $70, saying that “narrowing the margin gap with its Big 3 peers may take longer than anticipated, in our view, with many UAL specific problems not easy to fix quickly”. Meanwhile, analysts at Credit Suisse reiterated their ‘Outperform’ rating on the stock, citing limited downside. Just recently, the airline ended a potentially detrimental proxy fight by reaching an agreement with Brad Gerstner’s Altimeter Capital Management LP and Paul Reeder and Edward Shapiro’s PAR Capital Management LP, both major shareholders of United Continental, under which the size of the Board was increased to 17 seats and Mr. Shapiro and Barnaby Harford, an Altimeter-designated director, were appointed to the Board (read more details).

Shares of United Continental are down 11% year-to-date, partly owing to a 10%-drop in the past five trading sessions. The stock is priced at around 5.9-times expected earnings, significantly below the forward P/E multiple of 17.8 for the S&P 500. David Keidan’s Buckingham Capital Management trimmed its stake in United Continental Holdings Inc. (NYSE:UAL) by 45% during the March quarter to 45,345 shares.

The next two pages of this insider trading article discuss the insider buying activity registered at Lightbridge Corp (NASDAQ:LTBR) and Castle Brands Inc. (NYSEMKT:ROX).

Nuclear Fuel Technology Company Witnesses Chairman Buy Shares on a Consistent Basis

Lightbridge Corp (NASDAQ:LTBR) also had one influential insider purchase shares this past week. Thomas Graham Jr., Executive Chairman of the Board, bought 2,000 units of common stock on Friday for $0.49 each, which lifted his ownership to 103,630 shares. Mr. Graham purchased two additional 2,000-share blocks in 2016, of which one was purchased in mid-March and one in January.

The nuclear fuel technology company has seen its market value decline 69% in the past 12 months, after having dropped 54% thus far in 2016. The company currently focuses on developing next generation fuel technology that is anticipated to have the potential to increase significantly the power output of commercial reactors, reduce the cost of generating electricity and the amount of nuclear waste, as well as enhance reactor safety. Lightbridge anticipates to spend roughly $3 million to $3.5 million in research and development related to the development of its proprietary nuclear fuel designs in the upcoming year or so, which involves the preparation for a full-scale demonstration of its fuel technology in an operating commercial power reactor. Meanwhile, the company generates revenue by offering nuclear power consulting and strategic advisory services to international governments planning to create or expand electricity generation capabilities using nuclear power plants.

Lightbridge anticipates entering into a commercial fuel manufacturing arrangement in late 2017 or even earlier, which might include upfront technology access fees and engineering support or consulting payments. There were no hedge funds tracked by Insider Monkey with stakes in Lightbridge Corp (NASDAQ:LTBR) at the end of December.

The CEO of This Spirits Company Keeps Buying More and More Shares

Let’s wrap up this insider trading article by having a look at the insider buying activity witnessed at Castle Brands Inc. (NYSEMKT:ROX). President and Chief Executive Officer Richard Lampen snapped up 8,500 shares on Wednesday at $0.89 apiece. Mr. Lampen, who bought an additional amount of 67,100 shares this year, currently owns 1.26 million shares.

The shares of the spirits company, which produces and sells premium and super premium brands of rum, whiskey, liqueurs, vodka and tequila, have declined by 38% in the past 52 weeks. The company’s main objective is to become a profitable international spirits company; a target that does not seem to be achievable in the near future. Castle Brands has incurred significant operating and net losses since inception, and has not generated cumulative positive cash flows from operations either. Meanwhile, the spirits company’s net sales for the nine months that ended December 31 were $52.26 million, up by 26.5% year-on-year due to the overall growth of its Jefferson’s portfolio, and its Gosling’s rum and Gosling’s Stormy Ginger Beer. The company’s net loss for the nine months ended December 31 was $2.94 million, which improved from a $3.17 million net loss reported for the same period of the prior year.

Castle Brands had borrowed $9.6 million of the $19.0 million figure available under its credit facility at the end of December, while the company’s cash and cash equivalents were $1.9 million at year-end. There were four funds tracked by Insider Monkey invested in the spirits company at the end of 2015. Murray Stahl’s Horizon Asset Management reported owning 106,000 shares of Castle Brands Inc. (NYSEMKT:ROX) in its 13F filing for the first quarter of 2016.

Disclosure: None