Insider trading is a term many stock market laymen associate with illegal conduct, but insider trading activity involves both legal and illegal trades. Past research has shown that insider trading activity represents an informative barometer regarding major shifts in broader market or sector sentiment. One can look back at the massive insider buying in energy and banking stocks at the beginning of 2016 to realize the truth of these words. However, investors monitoring insider trading metrics should not blindly mimic each insider purchase or sale. Rather, they need to figure out the actual motivation behind each insider move. While insider buying is relatively straightforward to interpret, an accurate interpretation of insider selling is much more difficult. The CEO of a public company filed earlier this week to report the sale of two large blocks of shares, saying the cash proceeds would be used to purchase a residence. So while some insiders disclose the reason behind their moves in public filings, most of them do not. Leaving this discussion aside, let’s proceed to a study of several noteworthy insider transactions reported with the SEC on Thursday by corporate insiders at five U.S companies.
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 imitating the 15 most popular small-cap stocks among hedge funds outperformed the market by nearly a percentage point per month between 1999 and 2012 (read more details here).
Aftermarket Auto-Parts Provider’s CEO Buys Shares
Advance Auto Parts Inc. (NYSE:AAP)’s Chief Executive Officer, Thomas Greco, purchased 6,700 shares on Tuesday at a cost of $150.82 per share. After the recent purchase, Mr. Greco currently holds an ownership stake of 35,904 shares.
The North American automotive aftermarket parts provider has seen its market value jump by 4% since the beginning of 2016. Advance Auto Parts Inc. (NYSE:AAP)’s performance in recent years has been weighed on by the slower-than-anticipated integration of Carquest stores acquired with its purchase of General Parts International for roughly $2 billion in cash in October 2013, a takeover that created one of North America’s largest aftermarket auto-parts providers. The company faces tough competition from industry rivals, which has put significant pressure on sales growth and margins. However, Credit Suisse analysts believe that the freshly-appointed CEO “has a track record of turning around business units that were losing share and had weak productivity”, so the company may have a bright future ahead. Jeffrey Smith’s Starboard Value LP was the owner of 1.71 million shares of Advance Auto Parts Inc. (NYSE:AAP) at the end of March.
Board Member of Industry Leader in Patent Licensing Buys Shares
According to a fresh Form 4 filing, Frank E. Walsh III, a member of Acacia Research Corp (NASDAQ:ACTG)’s Board of Directors, bought 40,000 shares on Thursday for roughly $5.00 each, lifting his overall holding to 200,000 shares.
In early March, the self-named industry leader in patent licensing received an offer from ARC Acquisition Company LLC to purchase all of Acacia’s outstanding shares for $3.72 in cash, but the company’s Board, which did not include Mr. Walsh at the time, decided that the proposal was inadequate. The boardroom also expressed its belief that the company’s shares were undervalued at the time, and they turned out to be right given that the stock is now nearly 37% higher than the refused cash offer. Acacia Research Corp (NASDAQ:ACTG), which invests in patented technologies, as well as licenses and enforces patents, has seen its shares gain 18% thus far in 2016. Mark Broach’s Manatuck Hill Partners acquired a new stake of 300,000 shares of Acacia Research Corp (NASDAQ:ACTG) during the January-to-March period.
Let’s head to the next page of this insider trading article, where we will discuss the insider trading activity registered at three other companies.
This Struggling BDC’s CEO Buys Shares
Joseph Bertrand Tansey, Chief Executive Officer of Garrison Capital Inc. (NASDAQ:GARS), snapped up 10,000 units of common stock on Tuesday at prices that ranged from $10.38 to $10.50 per share, lifting his direct ownership position to 77,996 shares. Mr. Tansey also holds an indirect ownership stake of 789,910 shares through Garrison Investment Group LP and other entities.
The shares of the business development company (BDC), which invests in first lien senior secured loans, second lien senior secured loans, “one-stop” senior secured or “unitranche” loans, and other instruments, are down by 17% since the start of the year. Garrison Capital Inc. (NASDAQ:GARS) held investments in 67 portfolio companies at the end of 2015. The BDC’s net investment income for the first three months of 2016 was $5.86 million, down from $7.68 million reported for the same period of the prior year. The decrease was mainly attributable to non-performing assets and lower investment balances. D.E. Shaw & Co. L.P., founded by David E. Shaw, owned 30,640 shares of Garrison Capital Inc. (NASDAQ:GARS) on March 31.
Strong-Performing REIT’s Top Executive Sells Shares
Dennis D. Oklak, Executive Chairman of Duke Realty Corp (NYSE:DRE) since April 2005, discarded 75,000 shares on Wednesday at $24.41 apiece, trimming his direct ownership stake to 305,444 shares. The stake includes 3,703 shares acquired earlier this year through dividend reinvestment.
The real estate investment trust (REIT), which owns or jointly controls 583 industrial and medical office properties as of the end of March, has seen its market cap rise by 17% since the beginning of the year. Duke Realty Corp (NYSE:DRE)’s rental and related revenue from continuing operations for the first quarter of 2016 was $201.80 million, down from $214.62 million reported a year earlier, primarily due to the sale of 94 properties since January of 2015. The sales impacted the Indianapolis-based REIT’s top line by $22.5 million. Duke Realty bought two properties and placed 26 properties under development in service since January 2015, which added $6.3 million to its first-quarter top line. Ken Griffin’s Citadel Advisors reported owning nearly 195,000 shares of Duke Realty Corp (NYSE:DRE) in its latest 13F filing.
Fabless Semiconductor Firm Registers Cluster of Insider Selling
Mellanox Technologies Ltd. (NASDAQ:MLNX) registered a cluster of insider selling this week, which involved three different insiders. To start with, Board member Shai Cohen, who co-founded Mellanox Technologies, discarded 25,000 ordinary shares on Wednesday at prices of between $50.00 and $50.38 per share, trimming his ownership to 176,982 shares. Michael Kagan, yet another co-founder of Mellanox and Chief Technology Officer since January 2009, sold 2,000 shares on Tuesday and 1,000 shares on Wednesday at prices ranging between $50.00 and $50.31 per share. After the recent sales, Mr. Kagan holds a stake of 174,143 shares. Senior Vice President of Worldwide Sales, Marc Sultzbaugh, sold 5,000 shares on Monday at $49.05 apiece, cutting his holding to 73,937 shares.
The stock of the fabless semiconductor company has appreciated by 15% thus far in 2016. Mellanox Technologies Ltd. (NASDAQ:MLNX)’s shares tumbled in mid-April due to worries over slower-than-anticipated sales growth, as well as disappointing tech industry earnings. Jim Simons’ Renaissance Technologies had 1.04 million shares of Mellanox Technologies Ltd. (NASDAQ:MLNX) in its portfolio at the end of March.