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Insiders Cut Exposure to These Companies Amid Growing Global Economic Concerns

The majority of global equities markets incurred losses on Wednesday, mainly owing to the higher-than-expected drop in China’s manufacturing activity. The growing concerns about the weakening global economy might have guided some investors to pull out their money from stocks and invest in safer asset classes. Some corporate insiders have been cashing out their holdings as well, which might indicate weakening future prospects at their companies. In the following article we will examine and discuss the insider selling activity at Cracker Barrel Old Country Store Inc. (NASDAQ:CBRL), Ambarella Inc (NASDAQ:AMBA), and BorgWarner Inc. (NYSE:BWA). It would be silly to affirm that the insider transactions at these companies should be taken as a bearish sign for granted, as insider selling might not always be related to companies’ prospects. Nevertheless, such activity amid broader market turmoil might raise red flags, so let’s look whether those companies face material challenges.

Cracker Barrel (CBRL)

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 more than 118% over the ensuing 36 months, outperforming the S&P 500 Index by nearly 61 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.

We will start off by inspecting the insider selling activity at Cracker Barrel Old Country Store Inc. (NASDAQ:CBRL), which just a few days ago reported its financial results for the fourth quarter and full year that ended July 31, 2015. Christopher A. Ciavarra, Senior Vice President, Marketing, reported selling 5,000 shares on Monday at prices ranging from $146.41 to $148.41, trimming his holding to 10,274 shares. It is worth noting that the executive received 4,477 shares as performance-based stock awards, with 1,480 of these shares being deducted to satisfy federal tax withholding obligations. The company’s President and Chief Executive Officer, Sandy B. Cochran, also unloaded 40,000 shares on Friday at a weighted average price of $146.11, after receiving stock awards based on performance as well. Following the recent transactions, the executive currently owns 122,335 shares. Going back to company’s financial performance, Cracker Barrel Old Country Store reported revenue of $2.84 billion for the year, up 5.9% from the previous year. The company’s stock performance has been relatively strong, delivering a return of over 4% year-to-date. Israel Englander’s Millennium Management reported owning 188,985 shares of Cracker Barrel Old Country Store Inc. (NASDAQ:CBRL) in its latest 13F filing.

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