Prior to the beginning of August, the bull run that took place in the market over the last two-and-a-half years resulted in almost every company, including the not-so-good ones, seeing their stock price climb. However, the recent volatility in the markets has put an end to that bull run and stocks of companies with debatable fundamentals are the ones that have been hit the hardest, especially with their own insiders selling their shares. Although insider selling doesn’t always mean that insiders have stopped believing in their companies, it can signal that they are not utterly optimistic about them in the short-term, since nobody wants to sell a stock they are sure is going to move up. We at Insider Monkey constantly track insider trading activity to find actionable patterns and in this article we are going to look closely at three companies which insiders have been selling shares of recently: Village Super Market, Inc. (NASDAQ:VLGEA), Alaska Air Group, Inc. (NYSE:ALK), and QAD Inc. (NASDAQ:QADA).
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 2012 and they have returned 118% over the ensuing 36 months, outperforming the S&P 500 Index by over 60 percentage points (read the details here). The trick is focusing only on the best small-cap stock picks of funds, not their large-cap stock picks which are extensively covered by analysts and followed by almost everybody.
Let’s begin with the insider selling that took place in Village Super Market, Inc. (NASDAQ:VLGEA). On September 9, the Estate of Perry Sumas, the deceased founder of the company, sold 9,135 shares at a weighted average price of $26.97 and now holds a total of 866,198 shares of the company. Although Village Super Market, Inc. (NASDAQ:VLGEA)’s stock has witnessed a gradual decline in the last four-and-a-half months, the gains it made during March and April have resulted in it trading flat for the year. Village Super Market has been a consistent dividend-paying stock in the last 12 years, with the $0.25 per share quarterly dividend paid by the company translating into a solid annual yield of 3.76%. Among the hedge funds we track, Chuck Royce‘s Royce & Associates was the largest shareholder of the company at the end of June, owning over 1.24 million shares.
Proceeding ahead, Alaska Air Group, Inc. (NYSE:ALK) saw its Executive Vice President of Operations and Chief Operating Officer, Benito Minicucci, disposing of 5,000 shares on September 9 at a weighted average price of $81.31. Following this transaction, Mr. Minicucci now owns 70,494 shares of the company directly, 23,530 of which are restricted stock units awarded under the 2008 performance incentive plan of the company. Even though most other airlines have had it rough this year and are trading in the red, Alaska Air Group, Inc. (NYSE:ALK) is one of the few stocks from the sector that can boast of significant year-to-date gains, at 36.62%, thanks mostly to the rally it has had in the past three months. On September 2, the company reported increasing its capacity by 7.7% to 3.57 billion available seat miles during the month of August. Israel Englander‘s Millennium Management was one of the hedge funds that initiated a stake in the company during the April-June period, buying almost 740,000 shares.
Finally, Daniel Lender, who serves as the Chief Financial Officer and Executive Vice President at QAD Inc. (NASDAQ:QADA), reduced his stake in the company by 1,968 shares on September 9, at a weighted average price of $25.71. Mr. Lender has been selling shares of QAD Inc. quite often in the past few days and now owns 177,846 shares. The stock of QAD Inc. (NASDAQ:QADA) has been range-bound for nearly the past six months, and is currently trading up by 11.62% year-to-date. It recently had a big spike on August 27 following the release of the company’s second quarter earnings results on August 26. EPS for the second quarter came in at $0.19 on revenue of $71.30 million, compared to analysts’ consensus estimate of EPS of $0.11 on revenue of $73.10 million. Jim Simons‘ Renaissance Technologies reduced its stake in the company by 12% to slightly under 410,000 shares during the second quarter.
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