Strong Insider Selling Activity Detected: Cheniere Energy Inc. (LNG) and Others

Generally, insider trading activity represents an important tool in the process of fundamental security analysis, as it can offer some insights on how insiders feel about the prospects of their companies. Unquestionably, There are people who believe that insider selling does not suggest anything, but this line of thought may not be entirely accurate. Insider selling activity does not necessarily point to short-selling opportunities, but it may offer a general picture of how insiders feel about their companies’ stock. Why would an insider sell shares now when he/she anticipates stock price appreciation in the months ahead? There are emergency cases when insiders would not pay attention to how undervalued or overvalued a stock is; but, like many other financially conscious people, they would most likely wait a few more months so as to make more money on the stocks they own. Having this in mind, the following article will examine the insider selling activity at three companies.

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Prior to discussing the insider trading activity, let’s make you familiar with what Insider Monkey does besides providing high-quality articles. At Insider Monkey, we track hedge funds’ moves in order to identify actionable patterns and profit from them. Our research has shown that hedge funds’ large-cap stock picks historically underperformed the S&P 500 Total Return Index by an average of seven basis points per month between 1999 and 2012. On the other hand, the 15 most popular small-cap stocks among hedge funds outperformed the S&P 500 Index by an average of 95 basis points per month (read the details here). Since the official launch of our small-cap strategy in August 2012, it has performed just as predicted, returning 102% and beating the market by more than 53 percentage points. We believe the data is clear: investors will be better off by focusing on small-cap stocks utilizing hedge fund expertise (while avoiding their high fees at the same time) rather than large-cap stocks.

Let’s begin the so-called investigation by looking into the insider trading activity at Orthofix International NV (NASDAQ:OFIX). Chief Administrative Officer Jeffrey M. Schumm sold 15,000 shares this Friday at prices ranging from $40.15-to-$40.36, cutting his stake to 68,882 shares. Chief Executive Officer Brad Mason also unloaded 15,018 shares on the same day at prices between $40.11 and $41.47 per share. Following the recent transaction, the CEO currently holds 140,256 shares. The shares of the medical device company are 37% in the green year-to-date, partly thanks to its strong financial performance in the third quarter. Orthofix International NV (NASDAQ:OFIX) reported third-quarter net sales of $101.15 million, compared to $100.99 million reported a year ago. Its adjusted net income from continuing operations came to $5.7 million or $0.30 per diluted share, compared with $3.3 million or $0.17 per diluted share posted in the third quarter last year. In the meantime, 19 hedge funds observed by Insider Monkey had stakes in the company at the end of the second quarter, accumulating 39.10% of its outstanding common stock. Conan Laughlin’s North Tide Capital had one of the largest positions in Orthofix International NV (NASDAQ:OFIX) among these hedge funds on June 30, owning 1.5 million shares.

The second page of this article discloses the insider selling activity at Cheniere Energy Inc. (NYSEMKT:LNG) and Seattle Genetics Inc. (NASDAQ:SGEN).

Cheniere Energy Inc. (NYSEMKT:LNG) is another company that had an unusual volume of insider selling activity last week. Chairman, Chief Executive Officer and President Charif Souki offloaded 200,000 shares last week at prices in the range of $45.01-to-$47.66 per share. After this relatively sizable sell-off, the executive holds an ownership stake of roughly 3.50 million shares. Only a few may know that the company’s Louisiana-based gas terminals were initially intended for natural gas imports, but the shale revolution turned everything around. As a result, the Houston-based LNG company is on the way to become the nation’s first exporter of gas from the U.S. shale formations. However, the low oil-price-environment and the high global supply of LNG may put some weight on the nation’s gas exports, which may in turn weaken the demand for facilities like the one owned and operated by Cheniere. In the meantime, the shares of Cheniere Energy have been on a steady slide since May and are down 34% since the beginning of the year. The number of hedge funds monitored by our team with stakes in the company decreased to 76 from 81 during the second quarter, amassing 54.90% of the company’s shares. Seth Klarman’s Baupost Group owned roughly 15.37 million shares of Cheniere Energy Inc. (NYSEMKT:LNG) at the end of the June quarter.

Finally, we will investigate the insider selling activity at biotechnology company Seattle Genetics Inc. (NASDAQ:SGEN). Chief Operating Officer Eric Dobmeier sold 17,452 shares on Friday for $42.5 each. The COO currently holds 80,888 shares, which also include restricted stock units subject to vesting. Director David W. Gryska, who joined the company’s Board in March 2005, cut down his stake by 10,000 shares on Thursday, remaining with 23,950 shares. The 10,000-share block was sold at a weighted average price of $43.57. Seattle Genetics recently disclosed its third-quarter financial results, posting total revenues of $84.1 million, which were up from $79.9 million reported a year ago. These revenues are mainly derived from its marketable drug Adcetris, but the company has been incurring higher research and development costs in relation to the development of its pipeline. As a result, the company’s third-quarter net loss widened year-over-year to $26.4 million from $15.6 million. Meanwhile, the stock is 35% in the green year-to-date, so the aforementioned insiders might have simply decided to cash out a portion of their holdings (e.g. the trading window for these insiders might have just opened). It is also worth mentioning that 16 hedge funds tracked by Insider Monkey had positions in the company at the end of the second quarter, all of which accumulated 26.80% of the company’s shares. Baker Bros. Advisors, founded by Julian Baker and Felix Baker, held a 30.87 million-share position in Seattle Genetics Inc. (NASDAQ:SGEN) on June 30.

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