Last week, I talked about the predictive nature of insider cluster selling and gave some examples of stocks you might want to avoid because insiders are bailing in bunches. There have been numerous studies of insider buying and selling and its predicative nature over the years -- and I have seen the results play out in real life over the past two decades.
There is a lot more insider selling than buying going on right now, but I ran a screen looking for cluster insider buys this morning. In the 1960s, Jim Lorie and Victor Niederhoffer were among the first to examine this strategy and it remains valid today. When you see three or more insiders buying a company's shares in a short time span, those stocks tend to go higher.
I ran a screen this morning for companies where insiders are buying in bunches, and it is a fascinating , although very short, list of stocks. It is the lowest number of stocks with cluster buying I have seen in some time and I will spend a little time today thinking of the ramifications, if any, of that fact.
Halcon Resources (HK) was a popular energy stock but the bloom has come off this rose. The stock has dropped continuously all year as the company has fallen out of favor. Management has done debt offerings in the past year and issued stock and convertible preferred stock to refinance debt and shore up the balance sheet.
The company has lowered its guidance for the rest of year and the stock price has suffered. The stock now trades at just 90% of tangible book value and insiders seem to think it is pretty cheap at this level. Officers and directors, including the CEO and CFO, were heavy buyers of the secondary offering and others bought shares after the offering when the price continued to fall. In all, 13 insiders have bought more than $30 million of stock in the past month.
One of the really interesting stocks on the list is Annaly Capital (NLY). The mortgage real estate investment trust (REIT) has seen its shares pretty much collapse this year on fears about rising rates. Asset values have declined for Annaly and there is a decent chance the company will cut its dividend before the end of the year.
The stock is mildly controversial right now, so for every raging bull on the shares I can find a rabid bear who thinks it has lot further to fall. Insiders are falling into the bull camp, as four insiders (including the CEO) have combined in the last month to buy 2.4 million shares. The last time we saw a cluster of open market/open checkbook buys of the stock by insiders was in August and September of 2009. The total return in the shares then has been pretty impressive and it is worth further investigation to see if the insiders are setting up for another big run in the share price.
The remaining three companies are all REITs. American Realty Capital Properties (ARCP) owns stand-alone commercial office buildings across the U.S. Trading at more than 2x book value, the stock is too rich for me, but officers and directors have purchased $2.8 million in stock this month. The company has been adding to its property portfolio at a furious rate and intends to buy about $1 billion in stand-alone triple-net lease properties in the second half of the year. I wish it were cheaper because with the market levels of smaller commercial real estate, the insiders are buying at bargain levels.
Healthcare Trust of America (HTA) buys properties related to the medical field, including medical office buildings and healthcare facilities. The company has approximately $2.7 billion based on purchase price and it is comprised of approximately 12.9 million square feet of gross leasable area located in 27 states. Trading at 1.75x book value, the stock is too rich for me; however, four insiders have stepped up and purchased $371,000 of the stock this month.
I just wrote about Silver Bay (SBY) yesterday. In the past month, insiders at the single family home rental REIT have purchased almost $1 million of stock in the open market.
Paying attention to cluster buying by corporate officers and directors has been a winning strategy most of the time. The activity is limited to real estate and oil and gas this month, so it will be interesting to see how these stocks fare over the rest of the year.