Insider trading can be very useful for investors, especially when used to create a watch-list for further analysis. In particular, Form 4 P-code transactions by senior management or significant directors are widely considered to be a positive sign for investors, as they signal cash purchases that were not awards, grants, planned transactions, or the result of exercising derivatives like options.
Recently, insiders have taken such meaningful transactions in FelCor Lodging Trust Inc. (FCH), Xenith Bankshares Inc. (XBKS) and AVI BioPharma Inc. (AVII). A close look at these companies suggests that investors may want to consider trading alongside the insiders.
FelCor Insiders Bet on the Future in Equity Raise
FCH, a real estate investment trust with an interest in approximately 85 hotels, recently raised $159 million in a common stock offering of 27.6 million shares. While these capital raises are generally considered to be bad news due to dilution, the company’s insiders purchased an aggregated $3.24 million worth of stock with their own money, according to regulatory filings.
From president and CEO Richard Smith’s $1.11 million purchase to EVP and CFO Andrew Welch’s $372,360 purchase, a total of seven senior officers and directors purchased a total of $3.24 million worth of company stock on March 29. Perhaps more importantly, these meaningful transactions occurred in amounts that significantly boosted their respective holdings of company stock.
Investors reading into this purchase will find that the proceeds from the offering will be used to finance the purchase of two midtown Manhattan hotels and repay existing debt. With revenues growing during its most recent quarter, the new hotels could add significantly to the firm’s top-line, while extinguishing debt should continue to reduce its interest expense, and ultimately may unlock significant value.
Xenith Insiders Buy Up Stock After Steep Decline
XBKS, a bank holding company operating in Northern Virginia and Washington, D.C., has fallen more than 20% since the beginning of the year and nearly 40% over the past 52 weeks, but that hasn’t stopped insiders from buying stock. In a recent equity raise, several key insiders purchased an aggregated $3.47 million in stock, according to regulatory filings.
On April 4, insiders ranging from president and CEO T. Gaylon Layfield to principal accounting officer Judy Gavant, purchased a total of $3.47 million shares in a seven million share equity offering at $4.25 per share. And when insiders purchase more than 10% of a dilutive common stock offering with their own cash, the move may be worth a second look for interested investors.
The bank intends to use the proceeds from the offering to fund organic growth of its loans to customers in its target markets, invest in its infrastructure and personnel and possibly make some acquisitions. In its recent annual report, the bank showed a significant increase in interest income from $213,137 to more than $10.6 million that was obscured by higher expenses from its ramped up growth.
AVI BioPharma Insiders Buy Into Its Future
AVII, a biopharmaceutical company focused on the discovery and development of novel RNA-based therapeutics for rare and infectious diseases, saw significant insider purchasing as a part of its recent equity offering and ahead of its clinical trial data. With an aggregate $375,000 in purchases made on April 6, this stock may be worth a second look for investors.
With president and CEO Christopher Garabedian purchasing $195,000 with his own cash in his first purchase of company stock, and two other transactions by directors valued at $180,000, these transactions could signal confidence in the biopharmaceutical company’s future, especially given the dilutive nature of the equity raise.
Proceeds from the company’s $30 million public offering will be used for R&D and product development, including the funding of clinical trials, pre-clinical studies and otherwise moving product candidates towards commercialization. With several near-term catalysts in its DMD Exon 50/51 and its AVI 6002/6003, and significant dilution out of the way for awhile, investors may want to look at this name.
Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.