By Meena Krishnamsetty and Javier Hasse
We come up with investment ideas by tracking hedge fund and insider transactions. Our research has shown that the 15 most popular small-cap stocks among hedge funds historically have outperformed the market by 18 percentage points ( see the details ). Recent studies on insider trading showed that investors can outperform the market by 7 percentage points by following certain insider purchases. Insiders have strong incentives to diversify their wealth away from the company they work for — and therefore reduce their risk. The fact that they ignore the benefits of diversification and buy the stock anyway can be interpreted as a signal of high confidence in the company. This is why, in addition to using hedge fund filings to develop investing strategies, we also maintain a database of insider purchases and take a brief look at significant insider buys to help investors decide if the company is worth further research. In this article we will look into five interesting insider purchases that occurred since the start of 2014.
On the first working day of the year, Michael Dailey , board director at Zix Corporation /zigman2/quotes/208005056/composite ZIXI +1.19% acquired 597 shares of the company's Common Stock. He paid $4.50 per share, and now owns 12,597 shares. Although a bet as small as his last one does not inspire the largest of confidences in the company, you should note that Dailey has been consistently adding shares to his holding every month since May of 2013, when he started a position in the stock.
The day after — Jan. 3 — Robert McDonald , Board Director at United States Steel Corporation /zigman2/quotes/200069642/composite X -6.41% started a position in the company's stock. Through four different transactions, he procured a total of 2,000 shares of the company. He paid $29.838 for the first 100 shares, $29.8378 for each of the following 200, and $29.8365 each, for an extra 800 shares. In addition, he got 1,000 shares of Common Stock under the terms of the company's Non-Employee Director Stock Plan. Even though the outlook for the general steel industry looks complicated in the U.S., analysts expect United States Steel Corporation to outperform its competitors over the long-term. The biggest hedge fund position in X is a put position though. Leon Shaulov initiated a brand new put position during the third quarter.
On the second week of 2014, on Monday, Jan. 6, Anne-Marie Ainsworth , President, Chief Executive Officer and Board Director at Oiltanking Partners LP disclosed the acquisition of 1,000 shares at prices ranging from $62.20 to $62.46 per common unit (the weighted average price was of $62.37 per share). She now owns 13,000 shares of Oiltanking Partners LP, worth more than $800,000 at the current stock price. Another insider betting on the company is L. David Griffis , Board Director, has been increasing his holdings in the stock since 2012.
This year´s third week also registered some interesting insider moves. On Wednesday, Jan. 15, C Robert Knapp , Board Director at MVC Capital, Inc. /zigman2/quotes/208207304/composite MVC +1.66% , added 31,006 shares to his holdings, having paid a price of $13.77 per share. On Thursday, Jan. 16th, he -once again- purchased the company's stock. In this occasion he bought 4,876 shares at a price of $13.87 per share. After the reported transactions, he owns 35,882 shares, indirectly, through a separately managed account and a private fund in which Mr. Knapp is a Principal. In addition, he holds 300,765.37 shares through Ironsides Holdings LLC, which is fully-owned by him.
Finally, Peter Feld , a director at Tessera Technologies , bought 50000 shares at an average price of $17.79 on January 16th. Peter Feld partners with activist hedge fund manager Jeff Smith . Starboard owned nearly 9% of Tessera's outstanding shares at the end of the third quarter. Another activist hedge fund, Amici Capital , owns 7.6% of the company. The last time Tessera was trading below the $18 mark was in March 2012. Tessera is a cash rich company with around $400 million in cash. Starboard has a very good track record, so this may be a good stock to research.
Insider Monkey's small-cap strategy returned 75.6% between September 2012 and December 2013, beating the S&P 500 index by more than 40 percentage points. Download a free sample newsletter by clicking the link above.