By Usman Rafi
Insider trades can provide additional information about where the company's management or large shareholders (those having larger than 10% stake in the company) see the share price heading. While there is always some degree of uncertainty surrounding the real motives behind these transactions, it is still helpful to keep a track of them. With this in mind, we came up with the list of most notable such trades in the last couple of days. Insiders at Abercrombie & Fitch Co. (ANF), Anacor Pharmaceuticals Inc. (ANAC) and Civeo Corp. (CVEO) made significant moves.
Most investors can't outperform the market by individually picking stocks because stock returns aren't normally distributed. A randomly picked stock has only 35% to 45% (depending on the investment horizon) chance to outperform the market. There are a few exceptions. One exception is the purchases made by corporate insiders. Academic research has shown that certain insider purchases historically outperformed the market by an average of 7 percentage points per year. This effect is more pronounced in small-cap stocks. Another exception is the small-cap stock picks of hedge funds. Our research has shown that the 15 most popular small-cap stocks among hedge funds outperformed the market by nearly a percentage point per month between 1999 and 2012. We have been forward testing the performance of these stock picks since the end of August 2012. These stocks managed to return more than 132% over the ensuing 2.5 years and outperformed the S&P 500 Index by nearly 80 percentage points (read the details here). The trick is focusing on the small-cap stocks, not the large-cap stocks which are extensively covered by analysts and followed by almost everybody. Following insider transactions and hedge fund purchases makes sense only when there are limited information available about the stocks that they are buying.
Moving on to the first insider trade which involved Bonnie Brooks, a director at Abercrombie & Fitch Co. Brooks acquired 1,000 shares at $22.69 per share and 1,200 shares at $22.56 to put her total holding at 2,200 shares. She was appointed as director last year after management shakeup demands from activist investor Engaged Capital LLC. Abercrombie & Fitch Co. is down by nearly 42% over the last 52 weeks amid disappointing financial results. In contrast, its apparel and accessories retailers industry is up by 12% over the same period. The company's founder & CEO Michael Jeffries stepped down late last year, but that still hasn't solved all its problems. The only interesting feature about the stock right now is its 3.62% dividend yield, but given the weakening business, the yield comes with a significant risk.
Among the hedge funds that we track, 28 had investments totaling $323.88 million at the end of the fourth quarter as compared to 30 funds with $342.98 million in the previous quarter. Joel Greenblatt's Gotham Asset Management held some 2.87 million shares valued at $82.16 million.
Anacor Pharmaceuticals Inc.'s Executive Vice President and CFO, M. Geoffrey Parker also added some 3,000 shares of the $2.27 billion biopharmaceutical company to his holding of 173,000 shares. Parker also directly owns 94,840 shares with his wife, Jill Gofen Parker through Geoffrey M Parker and Jill G Parker Revocable Trust. Parker's indirect stake in the company amounts to another 10,000 shares held through Delaware Charter Guarantee & Trust Company, which is a Trustee of Mr. Geoffrey Monroe Parker IRA.
Anacor Pharmaceuticals Inc. surged by more than 163% over the last year. Just last year, the company received FDA approval for Kerydin, a topical toenail fungus medication. Anacor has Novartis AG's (NYSE:NVS) Sandoz unit backing the commercialization of its new treatment. The fourth quarter, which was the first fiscal quarter that included Kerydin sales, posted solid results. William Leland Edwards' Palo Alto Investors upped its stake by a hefty 20% in Anacor Pharmaceuticals Inc. during the fourth quarter to 2.52 million shares valued at $81.33 million. Anacor is also among the top 3 biotech picks of VHCP Management according to the latest 13F filing.
Civeo Corp. also received some insider trading action as Bradley J. Dodson, who is the company's president, CEO and Director added some 91,600 shares at a price of $2.39 per share to his holding that now comprises of 553,275 shares. Civeo Corp. was a wholly owned subsidiary of Oil States International until its spin-off last year. The company provides lodging services to oil firms and the recent decline in oil prices had a strong impact on the company's financial results. Although the disappointing fourth quarter performance was expected, weak guidance provided by the company's management has caused an even steeper slide in the stock price. 2015 revenues are expected to fall between $520 million and $560 million, and the EBITDA range is between $130 million and $150 million. This compares badly with the $942.9 million revenues for 2014 and an EBITDA of $339.8 million. David Einhorn's Greenlight Capital upped its stake by 74% in Civeo Corp. during the fourth quarter to 10.66 million shares valued at $43.8 million.
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. The author has no business relationship with any company whose stock is mentioned in this article.