Executives Are Selling These 3 Stocks; Should Investors be Wary?

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.

The following pages of this daily insider trading article discuss the insider sales reported at NBT Bancorp Inc. (NASDAQ:NBTB) and Donaldson Company Inc. (NYSE:DCI).

Moving on to the second company discussed in this article, NBT Bancorp Inc. (NASDAQ:NBTB) witnessed two executives sell shares last week. Executive Vice President and President of Commercial Banking Jeffrey M. Levy unloaded 2,086 shares on Wednesday at a weighted average price of $26.82, cutting his overall holding to 41,545 shares. President of Retail Banking David E. Raven sold 5,860 shares on the same day, at prices ranging from $26.45 per share to $26.99 per share, and currently owns 26,193 shares.

The financial holding company that serves as a community-oriented financial institution has experienced share gains of 6% over the past year, despite embarking on a steep downtrend since the beginning of December. The company’s net income for the first nine months of 2015 added up to $57.3 million, compared to $56.6 million reported for the nine-month period of 2014. Even so, NBT Bancorp’s net interest margin for the third quarter of 2015 compressed year-over-year to 3.48% from 3.61%. However, one might expect this interest margin to expand in the future, considering the rising interest rate environment. Most importantly, the company’s organic loan growth for the first nine months of 2015 reached 6.6%, which is a promising indicator for the bank. A mere five hedge funds from our extensive database owned the stock at the end of the third quarter. Cliff Asness’ AQR Capital Management was one of them, but cut its position in NBT Bancorp Inc. (NASDAQ:NBTB) by 12% during the third quarter to approximately 207,000 shares.

Lastly is Donaldson Company Inc. (NYSE:DCI), which registered a high volume of insider selling over the last two months of 2015, while insider buying activity hasn’t been witnessed since 2012. On Wednesday of last week, Chief Information Officer and Vice President Mary Lynne Perushek discarded 1,391 shares at $26.79 apiece, reducing her holding to 31,244 shares.

The shares of the global manufacturer of filtration systems and replacement parts are down by 27% over the past year, so the heavy insider selling witnessed at the company might raise red flags for some investors. The company considers having a global presence as one of its core strengths, but its high global exposure did impact its financials in recent quarters as a result of sluggish global economic growth and weakening currency translations. The company reported sales of $538.0 million for the first quarter of fiscal year 2016 that ended October 31, down by 9.8% compared to the first quarter of the prior fiscal year. The company’s top-line decline was mainly attributable to the negative impact of foreign currency, a decline in engine products sales and flat sales in the Industrial Products segment. The sluggish demand for replacement filters and the sustained decline in demand from original equipment manufacturers (OEMs) in the construction, mining, agriculture, aerospace, defense, and truck markets stand behind Donaldson’s disappointing performance. The number of smart money investors with positions in the company climbed to 22 from 15 during the third quarter, which included David Blood and Al Gore’s Generation Investment Management reporting ownership of nearly 655,000 shares of Donaldson Company Inc. (NYSE:DCI) through its 13F filing for the third quarter.

Disclosure: None