What Has Insiders Bullish On These Three Companies?

All major U.S stock indexes inched lower on Thursday, with investors being more focused on firm-specific developments rather than on the broader market sentiment. The Dow Jones Industrial Average closed 4.15 points or 0.02% in the red, while the Standard and Poor’s 500 lost approximately 0.11%. It looks as if most market participants are awaiting the monthly employment data, to be released today, as it might shed more light on the likelihood of seeing the Federal Reserve raise interest rates this year. Meanwhile, some corporate insiders have been acquiring more shares of their companies this week, which suggests their confidence in the future prospects of these companies. The Insider Monkey team pinned down three companies that have seen a high volume of insider buying activity this week, and this article will closely review each insider trade at those companies.

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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 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.

Nielsen N.V. (NYSE:NLSN) is one of the three companies in which notable insider buying activity was uncovered this week. Director James A. Attwood Jr. acquired 20,000 shares on Wednesday at a weighted average price of $47.75, enlarging his holdings to 22,985 shares. It is worth mentioning that this is the first insider buy at the company in more than two years, which emphasizes its significance. Let’s now briefly discuss how the global information and measurement company has been performing lately. Shares of Nielsen N.V. (NYSE:NLSN) have advanced by almost 7% since the beginning of the year and are currently trading at a trailing P/E ratio of 37.38, which is substantially above the ratio of 22.65 for the S&P 500 Index. However, this measure does not take into account the future growth of the company’s bottom-line. Meanwhile, Nielsen’s forward P/E ratio of 16.29, which compares much more favorably with the forward P/E ratio of 17.89 for the S&P 500, suggests that the stock is somewhat fairly valued. A total of 28 hedge funds within our database had Nielsen N.V. (NYSE:NLSN) in their portfolios at the end of the second quarter, with Kerr Neilson’s Platinum Asset Management being the top equity holder of the company among them, holding 3.39 million shares.

The next page of the article discloses the insider buying activity at Community Health Systems and BofI Holding.

Let’s proceed with the investigation of the insider buying activity at Community Health Systems (NYSE:CYH), which has seen two different Directors acquire stock this week. James S. Ely III, who was elected to the company’s Board of Directors in May 2009, purchased a 10,000-share block at a price of $29.25 per share and currently holds 30,227 shares. John A. Clerico, who has served as a Director at Community Health Systems (NYSE:CYH) since 2003, snapped up 10,000 shares on Wednesday at $27.62 apiece. After the recent transaction, the Director holds a stake of 95,217 shares. The shares of the hospital operator are down by 44% year-to-date, mainly owing to the firm’s weak third quarter financial figures which were released recently. Some tend to believe that the company’s third quarter earnings report reflects the weakening positive effect of the Affordable Care Act on hospital operators, but the company’s management is confident in its future prospects. Meanwhile, the stock is currently trading at a trailing P/E ratio of 8.64, which makes it a good buying opportunity at the moment. The hedge funds tracked by our team found the stock more appealing during the second quarter, as the number of top money managers invested in the hospital operator increased to 61 from 55 quarter-over-quarter. Larry Robbins’ Glenview Capital was bullish on Community Health Systems (NYSE:CYH) at the end of the June quarter, owning a 12.09 million-share stake.

Lastly, BofI Holding Inc. (NASDAQ:BOFI) is another company that had insiders buy stock in the past few days. President and Chief Executive Officer Gregory Garrabrants bought 6,670 shares on Tuesday and 1,605 shares on Wednesday, at prices in the range of $85.38-to-$94.94. The 6,670 shares were acquired for the Mercury Children’s Trust, which currently holds 42,670 shares. At the same time, the CEO holds a direct ownership stake of 184,798 shares. Moreover, Director Nick Mosich purchased 150 shares on Tuesday for $85.90 each, and currently holds a 24,936-share stake. In mid-October, The New York Times reported that a former internal auditor of the company filed a lawsuit alleging that he was fired “after revealing what he believed to be wrongdoing at the bank to federal regulators and management at Bank of Internet”. BofI Holding Inc. (NASDAQ:BOFI)’s shares tanked in October, but they are still 25% in the green year-to-date. Thus, it appears that these insiders are attempting to lessen the concerns about the ongoing issues at the company. Matthew A. Weatherbie’s Weatherbie Capital owned 571,227 shares of BofI Holding Inc. (NASDAQ:BOFI) at the end of the June quarter.

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