Numerous studies on insider trading attribute the outperformance of insiders’ trades to their contrarian investing strategy and their informational advantage. It is quite easy to notice that most corporate insiders act as contrarian investors, which is one of the key reasons their trades (and in particular their purchases) tend to greatly outperform stock market benchmarks in aggregate. Executives certainly have a better understanding of their companies’ prospects and challenges than anyone else, which is yet another crucial reason why insiders tend to beat the market. Of course, insiders are not allowed to trade on material non-public information, but they still have their own perceptions about how undervalued or overvalued their companies’ shares are, and they tend to be accurate on most occasions. The Insider Monkey team pinned down three companies that registered relatively notable insider selling this past week, which we’ll analyze in this article, in addition to discussing the performance of those companies.
Prior to discussing the insider trading activity, let’s make you familiar with what Insider Monkey does. At Insider Monkey, we track hedge funds’ moves in order to identify actionable patterns and profit from them. But why do we track hedge fund activity? From one point of view we can argue that hedge funds are consistently underperforming when it comes to net returns over the last three years, when compared to the S&P 500. But that doesn’t mean that we should completely neglect their activity. There are various reasons behind the low hedge fund returns. Our research indicated that hedge funds’ long positions actually beat the market. In our back-tests covering the 1999-2012 period, hedge funds’ top small-cap stocks beat the S&P 500 index by double digits annually (read the details here).
Let’s kick off our investigation by looking into the insider selling reported at Boston Scientific Corporation (NYSE:BSX). Kevin J. Ballinger, Senior Vice President and President of Interventional Cardiology, reported selling 19,059 shares on Thursday at prices of between $17.73 and $17.85 per share, trimming his stake to 30,323 shares. The executive also sold 16,114 shares last Tuesday at exactly $18.00 apiece, though that sale was conducted under a pre-established trading plan. The manufacturer and marketer of medical devices used in numerous interventional medical specialties has seen its shares rise by almost 19% over the past year despite losing 5% since the beginning of 2016. Boston Scientific Corporation (NYSE:BSX)’s net sales for the first nine months of fiscal year 2015 totaled $5.499 billion, up from $5.493 billion reported for the same period of 2014. In early August, the company finalized the acquisition of the American Medical Systems male urology portfolio from Endo International plc (NASDAQ:ENDP) for up-front cash of $1.616 billion, along with a potential $50 million in considerations based on sales generated during fiscal year 2016. This portfolio included Endo’s men’s health and prostate health businesses. A total of 37 hedge funds tracked by Insider Monkey were invested in the company at the end of the September quarter, amassing 6.70% of its outstanding common stock as of that time. Ric Dillon’s Diamond Hill Capital holds a 20.72 million-share position in Boston Scientific Corporation (NYSE:BSX) as of September 30.