There are growing concerns that the increased usage of stock options as employee compensation has pushed management teams to move away from a long-term mind-set toward quarterly performance. In different words, executives tend to focus on reaching Wall Street expectations rather than on the true long-term performance of their companies. The fast-increasing expansion of stock options as compensations has also distorted the data on insider trading behavior, which makes the insider selling activity less relevant to most market participants. Nonetheless, if I were pouring my hard-earned capital into a company’s stock for a medium- to long-term horizon, I would have been alarmed by high volume of insider selling at that company. Although insiders can cash out their holdings for a wide range of reasons, including diversification purposes or personal cash needs, monitoring insider selling activity should still play a key role in one’s stock analysis process. The Insider Monkey team pinned down three companies that registered noteworthy insider sales last week, so this article focuses on analyzing those trades.
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 more 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.
Costco Wholesale Corporation (NASDAQ:COST) had not seen any insiders sell stock for more than four years until last week. Director James D. Sinegal, co-founder and former CEO of Costco, unloaded 50,000 shares on Friday at a weighted average price of $160.00, cutting his direct ownership stake to 848,544 shares. The Director also holds an indirect ownership stake of 804,018 shares. Executive Vice President and Chief Information Officer Paul G. Moulton sold 19,095 shares on Thursday at prices in the range of $161.37-to-$163.26 per share and currently holds 68,539 shares. The shares of Costco Wholesale Corporation (NASDAQ:COST), which operates nearly 700 membership warehouses, have advanced nearly 13% in 2015 and more than 120% over the past five years. The retailer’s success in cutting long-term costs has enabled the company to offer low-priced products, which has in turn resulted in higher sales volumes and rapid inventory turnover. Costco’s member renewal rate reached roughly 91% in the United States and Canada, and roughly 88% on global basis in 2015. Furthermore, the company’s net sales in 2015 grew $3.45 billion or 3% year-on-year to $113.67 billion, thanks to additional warehouse openings and an increase in comparable warehouse sales. However, the stock is trading at a relatively rich trailing price-to-earnings ratio of 30.02, which compares with the average of 22.73 for the S&P 500 benchmark. Warren Buffett’s Berkshire Hathaway held its position in Costco Wholesale Corporation (NASDAQ:COST) unchanged at 4.33 million shares during the third quarter.
Let’s refocus our discussion on the insider selling activity witnessed at Oasis Petroleum Inc. (NYSE:OAS). Chairman and Chief Executive Officer Thomas B. Nusz offered 75,000 shares as a bona-fide gift on Tuesday and sold 200,000 shares on Thursday at a weighted average sale price of $9.30. After the recent transactions, the CEO owns 1.71 million shares. The independent exploration and production company focuses on the acquisition and development of oil and natural gas resources in the Williston Basin. The low crude oil price environment has forced the company to cut its planned 2015 capital expenditures and focus on its drilling activities in the areas that are most economic. Oasis Petroleum’s total revenues for the nine months that ended September 30 totaled $607.7 million, down by 44% year-on-year. The company’s top-line decreased as a result of lower realized oil and natural gas sales prices, which decreased by 50% and 72% on average, respectively, during the nine-month period of 2015 as compared to the same period of 2014. At the same time, the increased production volumes partially offset the negative impact of low oil and natural gas prices. A total of 26 hedge funds from our database were invested in the company at the end of the third quarter, amassing 34.50% of the company’s outstanding shares. Let’s not forget to mention that the stock is 48% in the red year-to-date. John H. Scully’s SPO Advisory Corp cut its position in Oasis Petroleum Inc. (NYSE:OAS) by 1% during the third quarter to 20.22 million shares.
Last but not least, Mohawk Industries Inc. (NYSE:MHK) also saw one of its top executives sell shares last week. President and Chief Operating Officer W. Christopher Wellborn reported selling an 8,707-share block on Wednesday at $195 apiece, trimming his overall holding to 192,127 shares. The shares of the flooring manufacturer are up nearly 22% in 2015 and are trading at a trailing P/E ratio of 24.66, which is slightly above the ratio for the S&P 500 Index. The company reported net sales of $6.07 billion for the nine-month period that ended October 3, which denotes an increase of $221.6 million or 3.8% year-over-year. Its net earnings for the same nine-month period totaled $423.7 million, as compared with $385.1 million reported for the same period a year ago. This increase was mainly achieved as a result of increased sales volumes, enhanced operations productivity, lower input costs, lower taxes and interest expenses. The number of smart money investors with long positions in the company climbed to 64 from 59 during the third quarter, whereas the value of these positions shrank to $2.87 billion from $3.89 billion quarter-on-quarter. Billionaire Dan Loeb of Third Point reported owning 2.15 million shares in Mohawk Industries Inc. (NYSE:MHK) via the fund’s latest 13F filing.