Why Are Insiders Buying These Three Stocks?

Many do not expect U.S equities to make any significant moves until the completion of the Fed’s two-day policy meeting this week. However, Apple Inc. (NASDAQ:AAPL) is set to disclose its fiscal fourth quarter 2015 earnings report after the market close today, which could move the market significantly considering its market capitalization. Going back to the Federal Reserve’s meeting, the odds of seeing a rate hike this month are minimal, but most market participants are still eager to take note of the Fed’s post-meeting statements so as to get an idea of what the future holds. This meeting may also send a new wave of volatility through the markets, given that the recent rally has been partially propelled by the diminishing concerns about the Fed raising interest rates this year. In the meantime, some companies’ insiders have been acquiring stock recently, which should be taken as a bullish sign towards those companies’ respective stock. Generally, insider buying is quite straightforward to interpret, as it is highly unlikely that an insider is acquiring shares believing that they will be heading lower in the months or years ahead. The Insider Monkey team pinpointed three companies with a strong volume of insider buying activity, and this article will attempt to dig out the reasons that might have guided these companies’ insiders to buy 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 three years, 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.

To start out, Spectranetics Corp (NASDAQ:SPNC) was one of the companies whose insiders were bullish on it. John R. Fletcher, who has served on the company’s Board of Directors since March 2002 and was appointed Chairman in December 2010, purchased 8,000 shares on Monday at a price of $12.41 per share. After the recent purchase, the Director holds an ownership stake of 121,728 shares. On Thursday, the medical device manufacturer that creates minimally invasive products used in cardiovascular surgery released its financial report for the third quarter, posting revenue of $61.7 million, which was up by 5% year-over-year. Spectranetics Corp (NASDAQ:SPNC) reported a non-GAAP net loss of $7.2 million or $0.17 per share, compared to a net loss of $1.9 million or $0.05 per share reported a year ago. The market reacted positively to the report, considering that analysts had anticipated a net loss of $0.26 per share on revenue of $60.1 million. Despite the recent spike in the company’s share price, the stock is still down by 54% year-to-date. Hence, the Director may be betting on further stock price appreciation in the months ahead. Israel Englander’s Millennium Management reported ownership of 1.90 million shares in Spectranetics Corp (NASDAQ:SPNC) through its 13F filing for the June quarter.

Let’s turn the page, where we discuss the insider buying activity at the other two companies.

Investment banking and institutional brokerage firm FBR & Co (NASDAQ:FBRC) has also seen high insider trading activity on the buy side recently. President and Chief Executive Officer Richard J. Hendrix acquired 2,500 shares for $19.85 each and currently owns 274,195 shares. This move also comes after the company reported its financial results for the third quarter. Nevertheless, FBR & Co (NASDAQ:FBRC) disclosed disappointing financial results, which were partially impacted by the recent high market volatility. The firm’s net revenues decreased to $25.58 million from $42.10 million reported a year ago. At the same time, the investment bank reported a net loss of $3.4 million, compared with net income of $3.5 million registered in the same quarter of last year. However, FBR & Co pays out an annualized cash dividend of $0.80 per common share, which offers a current dividend yield of 4.04%. All in all, given that the stock has lost nearly 19% since the beginning of the year, the executive might be acquiring shares on weakness at the moment. Royce & Associates, founded by Chuck Royce, was the top stockholder of FBR & Co (NASDAQ:FBRC) within our database at the end of the second quarter, holding a stake of almost 299,000 shares.

Finally, Baylake Corporation (NASDAQ:BYLK)’s Director Louis James Jeanquart bought 3,000 shares on Friday at a price of $14.45 per share. Following the acquisition, the Director currently holds a direct ownership stake of 303,779 shares, along with an additional 37,506 shares held indirectly. At the beginning of September, the bank holding company for Baylake Bank announced its merger with Nicolet Bankshares Inc. (OTCBB:NCBS), which will create the fourth-largest bank headquartered in Wisconsin by deposit market share. As a result, each shareholder of Baylake Corporation (NASDAQ:BYLK) will receive a fixed ratio of 0.4517 shares of Nicolet common stock per each share of Baylake. The value of the deal is estimated to be approximately $141 million, which yields a transaction value of $15.02 per share of Baylake stock. Let’s not forget to mention that the merger is set to be completed in the second quarter of 2016.

Disclosure: None