Microsoft Corporation (MSFT), Hawaiian Holdings Inc. (HA), and Costco Wholesale Corporation (COST) Witnessing Heavy Insider Selling Activity

Most U.S. stocks continue their recovery from the August sell-off, thanks to the third-quarter earnings that came in slightly stronger-than-expected and the diminishing odds of the Federal Reserve raising interest rates in 2015. The “cheap money” mode of the largest economies in the world has also fueled the rally, as central banks are being forced to inject more dynamism into their economies. However, some tend to believe that U.S. equities have greatly deviated from their fundamentals, yet again “thanks” to the monetary policy pursued by the Fed. Meanwhile, the conditions for a rate hike are approaching, so the US-listed companies may see their valuations come down or go up to their intrinsic fundamentals after the Fed decides to make this major step. Bearish investors might find it really hard to spot any short-selling opportunities amid a broader market rally, but the recent insider selling activity might highlight some potential trading opportunities. Nevertheless, one should not forget that insider selling may occur for a plentiful of reasons that are not related to companies’ prospects, fundamentals, and other firm-specific issues, so each insider sale should be closely examined and accurately interpreted. Having said that, we will proceed with the discussion of noteworthy insider selling activity that has occurred at three companies since the beginning of the current trading week.

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Prior to discussing the insider trading activity, let’s make you familiar with what Insider Monkey does besides providing high-quality articles. We track hedge funds and prominent investors because our research has shown that historically their stock picks delivered superior risk-adjusted returns. This is especially true in the small-cap space. The 50 most popular large-cap stocks among hedge funds had a monthly alpha of about 6 basis points per month between 1999 and 2012; however the 15 most popular small-cap stocks delivered a monthly alpha of 80 basis points during the same period. This means investors would have generated 10 percentage points of alpha per year simply by imitating hedge funds’ top 15 small-cap ideas. We have been tracking the performance of these stocks since the end of August 2012 in real time and these stocks beat the market by 53 percentage points (102% return vs. S&P 500’s 48.7% gain) over the last three years (see more details here).

Microsoft Corporation (NASDAQ:MSFT) is one of the companies that has seen strong insider trading activity on the sell side lately. Chief Accounting Officer Frank H. Brod sold 20,000 shares on Tuesday at a weighted average price of $53.51, reducing his holding to 117,889 shares. In the meantime, Brian Kevin Turner, who has been Chief Operating Officer since September 2005, unloaded 154,499 shares this Monday at prices ranging from $52.70 to $53.17. After the recent sale, the COO currently holds an ownership stake of 987,080 shares. The shares of the tech giant are 16% in the green year-to-date, mainly due to its strong third-quarter financial results. Earlier this week, Microsoft Corporation (NASDAQ:MSFT) opened its first flagship 22,369 square-foot store in Manhattan, which represents its largest existing retail store. At the same time, the company released its highly-anticipated Surface Book and the Surface Pro 4, which may give a boost to its top-line in the upcoming quarters. All in all, it appears that the executives might have decided to cash out some of their holdings given the price level the stock is currently trading at. As stated by our extensive database, Jeffrey Ubben’s ValueAct Capital was the top stockholder of Microsoft Corporation (NASDAQ:MSFT) at the end of the June quarter with 75.27 million shares.

Let’s head to the next page, where we discuss the insider selling activity at other two well-known companies.

Hawaiian Holdings Inc. (NASDAQ:HA) has also seen numerous insiders sell stock recently, but we will only discuss the insider sales that were not conducted under trading plans and do not involve recently-exercised stock options. Director Samson Poomaihealani reported selling 16,381 shares on Tuesday at a weighted average sale price of $35.02 and currently owns 22,921 shares. Barbara D. Falvey, Senior Vice President of Human Resources since July 2005, offloaded exactly 10,000 shares at prices in the range of $35.25-to-$35.26 per share, trimming her stake to 74,702 shares. The shares of the airline company have seen immense growth over the past few years, and are up 34% thus far in 2015. Just recently, Hawaiian Holdings Inc. (NASDAQ:HA) announced its plans to offer a new flying experience for its business class passengers for long-haul routes. The company will install 180-degree lie-flat seats in its A330 premium cabins in an attempt to challenge Virgin America, which will begin operating flights between Hawaii and the West Coast of the United States by the end of the year. Joel Greenblatt’s Gotham Asset Management added an 1.01-million position in Hawaiian Holdings Inc. (NASDAQ:HA) during the second quarter.

Lastly, let’s take a thorough look at the heavy insider selling at Costco Wholesale Corporation (NASDAQ:COST). To begin with, Principal Accounting Officer David S. Petterson sold 3,738 shares on Tuesday for $157.50 each, reducing his holding to 26,206 shares. Executive Vice President and Chief Financial Officer Richard A. Galanti unloaded 3,452 shares on the same day at a weighted average price of $157.30. After the transaction, the CFO owns 32,836 shares. Finally, Doug W. Schutt, Executive Vice President and COO-Merchandise, sold a 25,000-share block at an average sale price of $156.90, remaining with 54,840 shares. The shares of the global retailer are up 11% since the beginning of the year and are currently trading at a forward P/E ratio of 27.17, compared to the median of 18.41 for the companies included in the S&P 500. Thus, it appears that Costco Wholesale Corporation (NASDAQ:COST)’s stock is overrated at the moment if solely looking at this metric. Even so, the stock was recently upgraded by UBS to ‘Buy’ from ‘Neutral’, while the price target was raised to $180 from $153. Only time will show which of the two camps (i.e. corporate insiders or analysts at UBS) prove to reveal the “true” potential of the company. Warren Buffett’s Berkshire Hathaway was the largest shareholder of Costco Wholesale Corporation (NASDAQ:COST) within our database at the end of the second quarter with 4.33 million shares.

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