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The Insider Buying At These Companies May Represent Key Pieces Of The Investment Thesis Puzzle

Some believe that the recent broader market pullback was just a simple correction, and that the bull market is set to resume its course. Meanwhile, others tend to think that the third quarter earnings season will trigger another round of selloffs in the U.S stock markets, with results being predicted to disappoint. It seems almost impossible to accurately predict where the market is heading from here, as there are numerous forces driving it. However, some corporate insiders have been boosting their holdings lately, which may suggest that their companies hold bright future prospects. The Insider Monkey team pinpointed three companies with heavy insider buying activity that might offer useful insights concerning their outlook. The companies in question are represented by CONN’S Inc. (NASDAQ:CONN), Ampliphi Biosciences Corp (NYSEMKT:APHB), and Aeropostale Inc. (NYSE:ARO).

Most investors can’t outperform the stock market by individually picking stocks because stock returns aren’t evenly distributed. A randomly picked stock has only a 35%-to-45% chance (depending on the investment horizon) to outperform the market. There are a few exceptions, one of which is when it comes to purchases made by corporate insiders. Academic research has shown that certain insider purchases historically outperformed the market by an average of seven 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...