One important field Insider Monkey follows is insider trades. Ultimately, who else would be most informed about developments in companies than the people most closely associated with these organizations? It comes as no surprise, therefore, that data shows insider purchases can be relatively effective in predicting how a stock performs over the long-term. This is why today’s spotlight shines on Sothebys (NYSE:BID), Summit Hotel Properties Inc (NYSE:INN) and TrovaGene Inc (NASDAQ:TROV), all of which had significant insider buying on August 12. Apart from looking at the specific insider purchases in these companies, we will also delve into how hedge funds are trading them, for a clearer picture of how good of an investment these stocks are.
But why is Insider Monkey keen on looking at hedge fund activity? General opinion is that hedge funds under perform the S&P500 based on net returns, but we are missing something very important here. Hedge funds generally pull in strong returns from their top small-cap stocks. Furthermore, they invest a lot of their resources into analyzing these stocks. They simply don’t take large enough positions in them relative to their portfolios to generate strong overall returns because their large-cap picks underperform the market. We share the top 15 small-cap stocks favored by the best hedge fund managers every quarter and this strategy has managed to outperform the S&P500 every year since it was launched in August 2012, returning over 123% and beating the market by more than 65 percentage points (read the details). Because of this, we know that collective hedge fund sentiment is extremely telling and valuable.
Let’s first take a look at global auction giant Sothebys (NYSE:BID). In four transactions yesterday, Chief Executive Officer, President and Director Thomas S. Smith Jr. acquired a total of 61,950 shares at an average price of $38.45 per share. This bullish move by the firm’s top executive, who assumed his post in March, comes after the company’s shares were battered by a weaker-than-expected second quarter. Shares of the firm closed down by 7.5% on August 7 after it reported a profit of $73.1 million, down from $87.8 million in last year’s comparable quarter. Adjusted earnings per share was $1.04, well below expectations of $1.26. The firm’s second quarter results were adversely affected by currency exchange headwinds and a significant art auction in London which was delayed until the third quarter. Year-to-date, the stock has fallen by almost 14%, while in the past 12 months, it is nearly flat, declining by just 0.03%. It should be noted, however, that there was a slight ebb of capital from Sothebys (NYSE:BID)’ stock in the first quarter, as total hedge fund holdings decreased by 4.77% quarter-over-quarter, despite only a 2.13% decline in the stock’s price. Nonetheless, 37.37% of the outstanding stock of the firm is owned by hedge funds we follow as of March 31, indicating that hedge funds think the stock is a good investment. The most bullish hedge fund on Sothebys among them was Dan Loeb’s Third Point, as it owned 6.65 million shares worth about $281.03 million at the end of the first quarter. Paul Orlin and Alex Porter’s Amici Capital bought the largest new stake in Sothebys in the first quarter, holding a $30.3 million position of 717,000 shares by March 31.
Moving on to Summit Hotel Properties Inc (NYSE:INN), a hotel investment company, we see President and Chief Executive Officer Daniel Hansen bought a total of 10,000 shares at an average price of $12.19 per share in six transactions yesterday. Moreover, Director Thomas W. Storey bought 8,000 Summit Hotel Properties Inc shares at a price of $12.51 per share on August 10. Yesterday, the firm paid out a $0.12 per share dividend and the stock closed down by 1.39%. That move down is miniscule, nonetheless, compared to the 29.25% quarter-over-quarter decline of hedge fund holdings in the company in the first quarter. The outflow of capital from the smart money is more pronounced taking into account the 13.1% increase in the stock’s price in the first quarter. Hedge funds were proven right in the second quarter as the stock declined by 7.53%. Year-to-date, the stock has slid by 3.09% but over the last year, it is up by 13.22%. In addition, it should be noted that the stock is viewed as a solid investment by the hedge funds Insider Monkey follows, as they owned 6.36% of all Summit Hotel Properties’ shares as of March 31. The shareholder with the largest stake in Summit Hotel Properties Inc (NYSE:INN) at hat was J. Alan Reid, Jr.’s Forward Management with 2.85 million shares worth about $40.1 million. Ken Heebner’s Capital Growth Management dumped the largest investment of the 700 funds monitored by Insider Monkey in the first quarter, selling about 1.3 million shares worth $16.16 million.
Meanwhile, TrovaGene Inc (NASDAQ:TROV), a disease diagnostic technology development firm, also saw significant insider purchases yesterday. Chief Executive Officer Antonius Schuh, Chief Financial Officer Steve Zaniboni, and Director Stanley Tennant all bought shares yesterday. Mr. Schuh acquired 20,000 shares at $5.45 per share, while Mr. Zaniboni and Mr. Tennant secured 15,000 shares and 10,000 shares, respectively, at prices of $5.43 per share. TrovaGene reported its second quarter earnings results on Monday, failing to meet Wall Street estimates as it posted a loss per share of $0.24 with its adjusted loss pegged at $0.28 per share. The firm’s revenues also decreased by over 10% to $500,000. It should be pointed out, however, that the smart money is bullish on TrovaGene. There was a 166.09% increase in hedge fund holdings in the firm during the first quarter compared to the previous quarter. Though tempered by a 58.37% increase in the stock’s price in the first three months of the year, this was still a very significant growth in investments from hedge funds. The stock did not disappoint with its 49.05% growth in the second quarter. The stock has grown by 44.19% from the start of the year and by a more impressive 94.97% in the last 12 months. Moreover, as of March 31 a total of 17.03% of the company’s shares were owned by hedge funds we track, which means the smart money is overweight on the stock. Roberto Mignone’s Bridger Management held the most valuable position in TrovaGene Inc (NASDAQ:TROV) among those funds as of March 31, owning 2.85 million shares worth about $19.4 million. Peter Kolchinsky’s RA Capital Management was in second place on said date with its 594,200 shares, all of which it bought in the first quarter.