Insiders Unload Shares of TRACON Pharmaceuticals Inc. (TCON), Concho Resources Inc. (CXO), and Willamette Valley Vineyards Inc. (WVVI)

Page 1 of 2

Last week’s turmoil in the stock markets was highlighted by the 469-point drop in the Dow Jones Industrial Average on September 1, which was eventually followed by a two-day appreciation. Statistics say that the recoveries after massive sell-offs outside of recessions are generally strong, but that does not prove to be true yet. The Dow gained slightly over 10 points on September 3, so some corporate insiders might have feared that a broader correction is yet to continue. We have identified three companies that had a large insider selling activity in the last couple of days and we will try to figure out the reasoning behind these transactions. TRACON Pharmaceuticals Inc. (NASDAQ:TCON), Concho Resources Inc. (NYSE:CXO), and Willamette Valley Vineyards Inc. (NASDAQ:WVVI) are the companies we will be discussing in this article. It’s worth remembering that insiders might sell stock for a wide range of reasons unrelated to their companies’ prospects, but the sales amid a market correction might bring some useful insights.

Insider Trading 3

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 acquisitions 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 more 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.

Let’s begin by reviewing the insider activity at TRACON Pharmaceuticals Inc. (NASDAQ:TCON), a clinical-stage biopharmaceutical company that focuses on the development of novel targeted therapeutics for cancer, age-related macular degeneration, and fibrotic diseases. Jafco Super V3 Investment Limited Partnership, a large shareholder of TRACON, reported selling 8,000 shares at $10.49 per unit on Thursday, trimming its stake to 1.74 million shares. Jafco has been gradually unloading its stake in the biopharmaceutical company, with 29,300 shares sold on aggregate last week, so the sell-offs are not entirely related to the recent pullback of the stock markets. TRACON’s stock has gained nearly 13% year-to-date, in spite of the poor performance over the last month (the stock lost over 17% during this period). It’s quite evident that the stock is news-driven, so any updates on the company’s product pipeline will surely impact its stock. Therefore, potential investors considering putting money into TRACON should keep a close eye on the news surrounding the company. James E. Flynn’s Deerfield Management, one of the 737 investors tracked by Insider Monkey, owns 485,000 shares of TRACON Pharmaceuticals Inc. (NASDAQ:TCON) as of June 30.

Page 1 of 2