It is highly probable that the major U.S. stock indexes will fall this Monday, as investors may worry about the effects of the Paris terror attacks on consumer confidence and some of the global economies. Although this heartbreaking even may not have a long-lasting effect on the U.S. economy and stock markets, it can be expected that the demand for gasoline will ease up as people may hold back from traveling. Moving on to the underlying purpose of this article, the insider buying activity was significantly higher last week than it was in the prior one, which may suggest some insiders find valuations very attractive at the moment. The Insider Monkey team identified three companies with unusual insider buying last week, so let’s proceed with the discussion on what might have guided those companies’ insiders to acquire stock.
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.
Knowles Corp (NYSE:KN) is one of the aforementioned firms that saw insiders purchase stock last week. Director Donald Macleod purchased 15,000 shares on Thursday for $15.92 each, bumping up his stake to 33,309 shares. Hermann Eul, another Member of Knowles Corp (NYSE:KN)’s Board of Directors, bought 1,250 shares on Friday at a price of $15.39 per share. The Director currently holds a stake of 10,609 shares. Just recently, JMP Securities cut its price target on the stock to $27 from $29, following the release of the company’s third-quarter earnings report. The supplier of microphones and speakers disclosed earnings per share (EPS) of $0.16 on revenue of $294.6 million, compared to analysts’ expectations of EPS of $0.11 on revenue of $297.9 million (read more details). The shares of Knowles are down 34% for the year, while the recently-updated target price yields an upside of at least 75%. Knowles lost some of its charm among the hedge funds tracked by Insider Monkey during the second quarter, as the number of smart money investors with stakes in the company decreased to 16 from 21 during the three-month period. Ric Dillon’s Diamond Hill Capital reported owning 517,488 shares in Knowles Corp (NYSE:KN) via its 13F filing for the third quarter.
The second page of this daily insider trading article discusses the insider buying activity at Citizens Financial Group Inc. (NYSE:CFG) and Ambac Financial Group Inc. (NASDAQ:AMBC).
Let’s now turn our focus on the insider buying activity at Citizens Financial Group Inc. (NYSE:CFG), which registered a heavy insider buy last week. Vice Chairman and Head of Commercial Banking Donald H. McCree acquired an 80,000-share stake on Thursday at a weighted average price of $25.83. At the end of October, RBC Capital Markets reiterated its ‘Sector Perform’ rating on CFG’s stock and raised its price target to $25 from $24. The company’s business operations are mainly affected by national and regional economic conditions, which have been quite favorable this year. The path of interest-rate increases, the health of the housing market, the growth of the U.S. economy, and the strength of the labor market are the most prominent factors that can impact its business, so one might expect more upside for CFG’s shares in the forthcoming months. Meanwhile, the stock is nearly 3% in the green year-to-date, trading at an attractive trailing price-to-earnings ratio of 17.13 (the ratio for the S&P 500 stands at 22.70). CFG lost its popularity within the hedge fund industry during the second quarter, as the number of top money managers invested in the stock declined to 38 from 76 quarter-on-quarter. Richard S. Pzena’s Pzena Investment Management holds a 2.50 million-share position in Citizens Financial Group Inc. (NYSE:CFG) as of September 30.
Lastly, Ambac Financial Group Inc. (NASDAQ:AMBC) had one of its top executives buy stock last Thursday. Nader Tavakoli, Interim President and Chief Executive Officer since January 2015, bought 31,325 shares at $15.04 apiece, boosting this overall holdings to 46,325 shares. The holding company whose subsidiaries offer financial guarantees and other financial services has seen its stock decline 38% thus far this year. On November 9, the company reported its third quarter financial results, posting a net loss of $391.0 million or $8.66 per diluted share, which compares with net income of $282.7 million or $6.05 per diluted share reported last year. However, the net loss was mainly attributed to a $514.5 million goodwill impairment charge. Meanwhile, the company’s operating earnings came to $282.7 million, up from $170.5 million registered in the same period last year. The number of hedge funds observed by our team with positions in Ambac remained unchanged during the second quarter at 29, amassing 32.80% of the company’s outstanding common stock on June 30. Andy Redleaf’s Whitebox Advisors cut its exposure to Ambac Financial Group Inc. (NASDAQ:AMBC) by 396,570 shares during the third quarter, remaining with 566,729 shares.
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