In our analysis of the wealth of insider trading activity that took place on Monday, we zeroed in on three particular companies that displayed a high monetary value of insider sales by company big wigs, who elected to cut ties with portions of their stock rather than wait for shares to rise. While insider selling should not be considered bearish activity per se, as it can occur for a variety of reasons that have nothing to do with an insider having bearish sentiment towards the stock, it can nonetheless be telling in some instances. Let’s take a look at these three cases, which involve Adobe Systems Incorporated (NASDAQ:ADBE), Blue Buffalo Pet Products Inc (NASDAQ:BUFF), and Intuitive Surgical, Inc. (NASDAQ:ISRG), to see what we can determine about these stocks and the insider selling activity that took place in regards to their shares. We’ll also analyze hedge fund sentiment to determine the direction the smart money has been leaning in with regards to these stocks.
Most investors don’t understand hedge funds and indicators that are based on hedge funds’ or insiders’ activities. They ignore hedge funds in particular because of their recent poor performance in the bull market. Our research indicates that hedge funds underperformed because they aren’t 100% long. Hedge fund’s fees are also very large compared to the returns generated and they reduce the net returns experienced by investors. We uncovered that hedge funds’ long positions actually outperformed the market. For instance the 15 most popular small-cap stocks among funds has beaten the S&P 500 Index by more than 66 percentage points since the end of August 2012. These stocks returned a cumulative of 123.1% vs. 56.6% gain for the S&P 500 Index (read the details). That’s why we believe investors should pay attention to what hedge funds are buying (rather than what their net returns are)
Let’s start with Adobe Systems Incorporated (NASDAQ:ADBE), the largest and most well-known of the three companies. Director Robert Sedgewick sold 25,000 shares of the company at a price of $80.27 per share on Monday, with the total transaction adding just over $2.0 million to Sedgewick’s bank account. Sedgewick isn’t the only man with close ties to the company who’s been selling shares of late; activist investor Jeffrey Ubben has slowly been divesting himself of his own considerable holdings in the company, with his at-one-time 31.3 million-share stake now being reduced to just 14.01 million shares following his latest sales this month. Shares are up only slightly over the past five months, though they’re still up by nearly 11% year-to-date. With the company’s transition to a premium subscription model now complete and the benefits from that move having been realized over the past three years of trading, it appears there may be little room left to the upside for the stock in the near term. The smart money seems to think so, as they left Adobe Systems Incorporated (NASDAQ:ADBE)’s stock in droves during the first quarter, with nine less fund managers holding positions in the company on March 31 at 37 as did on December 31. Their collective holdings also dropped by about 10%, despite shares rising slightly during the quarter, showing that they cashed out some of their positions in the stock. Ubben remained the largest shareholder of the company in our database following the end of the first quarter, with billionaire Stephen Mandel‘s Lone Pine Capital holding down second with 12.05 million shares.