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Summary

  • Asymmetric risk/reward from Clifton Bancorp.
  • Regional banks in particular has seen high insider-buying activity.
  • 5 stocks below have seen tremendous levels of insider buys recently.

As described in this Seeking Alpha article, the insider trading anomaly has been extremely profitable for the past 50 years. Without consideration to any other investment criteria, insider purchases achieve abnormal returns of 4.1% in the first 6 months. Consequently, it makes sense to follow the insider money, and I have created a set of actionable investments that follow this principle. Every stock in the following group has seen multiple insiders make purchases in the last 3 months.

1) Ladenburg Thalmann Financial Services (NYSEMKT:LTS) - Since March 14, 9 insiders purchased 184,009 of Ladenburg Thalmann Financial's shares outstanding for a value of over $500,000. The average price paid for the shares of this financial services firm was $2.93. The stock currently trades around $3, below its 52-high of $3.54, and but has potential to reach this level.

2) Akebia Therapeutics (NASDAQ: AKBA) - On March 25, 7 insiders purchased 479,325 shares, representing 2.37% of shares outstanding, at an average price of $17 per share. This combined value of the purchases is $8,148,525. Shares in this biopharmaceutical company currently trade at $28.31, above its 50-day moving average of $21.34. Shares are 20% below the 52-week high of $28.50, so the stock to be undervalued relative to historical prices.

3) Clifton Bancorp (NASDAQ: CSBK) - On April 1, 8 insiders purchased 80,775 shares, representing 0.31% of the shares outstanding. At an average purchase price of $10.21, the combined value of the purchases total $825,000. The stock currently sits at $12.20, and it is fairly liquid with average volume of 302,698 over the past 3 months.

4) Old Second Bancrop (NASDAQ: OSBC) - On April 8, 11 insiders purchased a total of 289,767 shares at an average price of $4.40, totaling $1,274,975. This stock is currently up 7.5% from the date of these purchases. Nevertheless, the share price is close to the 50-day moving average of $4.79 and over 30% below the 52-week high of $6.92.

5) German American Bancorp (NASDAQ: GABC) - From March 17 to April 15, a total of 14 insiders purchased a combined total of 13,067 shares at an average price of $29.41 per share, representing a combined value of $384,288. Currently shares are trading below that price at $28.27. Furthermore, given that 3 of the 5 stocks on this list are banks, insiders may be viewing regional banks as been undervalued. Indeed, the S&P Regional Banking ETF (NYSE: KRE) has retreated 4% YTD.

Conclusion:

Among the three banks' shares, I see solid upside from Clifton Bancorp. The bank was profitable throughout the 2008 crisis due to stringent underwriting standards, and currently possesses very strong credit quality and 0.9 Price/TBV. The bank is very well capitalized with Tier 1 Risk-Based Capital Ratio of 16.18% and Total Risk-Based Capital Ratio of 38.62%. Since the bank's tangible bank value is currently not showing up on screens, I believe that many potential investors would miss this opportunity.

Source: Hidden Value From Abnormal Insider Buying Activity