Stronger Returns For Core Labs Expected From Here

About: Core Laboratories (CLB)
by: Adam Jones

Core Lab's CFO, Richard Bergmark, recently purchased 7,000 shares of common stock.

In the 12 months following a CFO open-market purchase, the stock outperforms similar stocks by 6.5%.

In the 12 months following a CEO open-market purchase, the stock outperforms similar stocks by 1.5%.

Core Labs (NYSE:CLB) recently made news because of the large purchase of stock in the open market by the CFO, Richard Bergmark. On July 18th, he purchased roughly $1,000,000 of stock. This suggests the stock should outperform similar companies by 6.5% over the next year. The CFO now holds nearly 70,000 shares of stock. Bergmark has been CFO and EVP with the company since 1999. He has not made another open market purchase of stock since at least 2008.

Richard Bergmark appears to have taken advantage of a recent steep drop in the share price associated with a disappointing earnings report. On the announcement of the purchase, shares rallied over 2% on Tuesday.

A recently published academic research article concluded that investors should pay much more attention to CFO purchases than CEO purchases. The study looked at CFO and CEO purchases between 1992 and 2002 and reached two surprising conclusions about the importance of CFO purchases:

  1. After public disclosure of both CFO and CEO purchases, the CFO purchases led to a nearly 5% better cumulative return over the next 12 months than CEO purchases and 6.5% better than stocks with similar characteristics but no purchases.
  2. Stocks with CFO purchases were roughly three times more likely to have positive earnings announcements in the 2 earnings releases following the purchase.

Another interesting conclusion reached in the research is that there is no significant predictive value in either CEO or CFO sales. This proves the saying 'there are many reasons to sell but only one reason to buy'.

This academic research is directly applicable to trading and investing because it verifies the continued significance of insider purchases.

The research was authored by Weimin Wang, Shin Yong-Chul, and Bill B. Francis. It was published in the Journal of Financial and Quantitative Analysis.

Over the past 12 months, the PHLX Oil Service Sector Index has returned 13% while CLB has returned 0.33%. Even before the recent drop, Core Labs trailed the Oil Service Sector with a return of just over 10%.

Disclosure: The author has no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. The author wrote this article themselves, and it expresses their own opinions. The author is not receiving compensation for it (other than from Seeking Alpha). The author has no business relationship with any company whose stock is mentioned in this article.