Noteworthy Insider Transactions at 5 Companies Amid Slowing Insider Buying as Markets Near All-Time Highs

Investors usually associate insider trading with illegal conduct, but not all insider trading activity is illegal. In fact, most corporate insiders buy and sell securities in a perfectly legal way. Of course, there are numerous cases of illegal insider trading, but most insiders tend to play by the rules imposed by the Securities and Exchange Commission when buying or selling shares. But what is the difference between legal and illegal insider trading? Let’s take a look at an old example to draw a line between the two types of activity.

In 2013, the former CEO of ImClone, Samuel Waksal, sold a $5 million stake, as well as his daughters’ holdings in the company, after finding out that the Food and Drug Administration had rejected ImClone’s main drug, Erbitux, for the treatment of cancer. Mr. Waksal traded on material non-public information, for which he was sentenced to seven years in prison and fined $3 million after pleading guilty to insider trading and fraud. Leaving this discussion aside, the following article will discuss the recent noteworthy insider trading activity registered at five publicly-traded 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).

Embattled Biopharmaceutical Company Registers Insider Buying

Catalyst Pharmaceuticals Inc. (NASDAQ:CPRX) has witnessed increased insider buying in the past several weeks, so let’s have a brief look at the most recent activity. Board member Charles B. O’Keeffe purchased 20,000 shares on Tuesday for $0.81 each, lifting his ownership to 432,126 shares.

The biopharmaceutical company focused on developing therapies for people suffering with rare debilitating diseases has lost 67% of its market value since the start of 2016, after the company received a ‘refusal to file’ letter from the FDA regarding its New Drug Application (NDA) for Firdapse. The investigational drug candidate was designed for the treatment of patients with Lambert-Eaton Myasthenic Syndrome, a rare and occasionally fatal autoimmune disease characterized by muscle weakness. The letter stated that the FDA had found Catalyst Pharmaceuticals Inc. (NASDAQ:CPRX)’s application “not sufficiently complete for review”. In late April, the company disclosed that the FDA requires positive results from an additional study of patients with LEMS, which put even more pressure on Catalyst’s stock. Kevin Kotler’s Broadfin Capital had 8.20 million shares of Catalyst Pharmaceuticals Inc. (NASDAQ:CPRX) in its portfolio at the end of March.

The next two pages of this insider trading article will reveal the latest noteworthy insider selling activity witnessed at four companies.

Long-Time Board Member of Successful Off-Price Retailer Sells Shares

Ross Stores Inc. (NASDAQ:ROST) had one member of its boardroom sell a sizable block of shares last week. George P. Orban, a member of the company’s Board of Directors since 1982, discarded 56,000 shares on Friday at prices between $57.10 and $57.75 per share, of which 21,000 shares were held through various trust funds. After the recent sale, Mr. Orban currently holds a direct ownership stake of 506,750 shares, as well as an indirect ownership stake of 653,130 shares held through six trust funds.

The largest off-price apparel and home fashion chain in the United States has seen the value of its stock gain 7% since the start of the year. Despite their limited presence in the online space, off-price retailers such as Ross Stores are well-positioned to thrive in an increasingly digital environment, which has put massive pressure on most brick-and-mortar apparel retailers. Ross Stores Inc. (NASDAQ:ROST)’s sales for the three months that ended April 30 were $3.09 billion, up from $2.94 billion recorded a year earlier. The increase was driven by the net addition of 74 stores since early May 2015 through the end of April 2016, as well as a 2% increase in comparable-store sales. Ken Fisher’s Fisher Asset Management cut its position in Ross Stores Inc. (NASDAQ:ROST) by 9% during the June quarter to roughly 195,000 shares.

Leading Provider of Open Source Solutions Registers Insider Selling

Red Hat Inc. (NYSE:RHT) saw a member of its executive team jettison a sizable block of shares earlier this week. Michael R. Cunningham, General Counsel of Red Hat since June 2004 and Executive Vice President since May 2007, sold 10,000 shares on Monday at prices ranging from $73.13 to $73.14 per share, cutting his overall holding to 64,800 shares.

The shares of the open-source software king are down by 10% thus far in 2016, partially owing to a disappointing outlook for the ongoing second quarter of fiscal year 2017 and for the full fiscal year. In late June, Red Hat Inc. (NYSE:RHT) released its financial results for the first quarter of fiscal year 2017 ended May 31, which showed that total revenue increased by 18% year-over-year to $568 million. The company anticipates revenue in the range of $2.38 billion-to-$2.42 billion for fiscal year 2017. Just recently, analysts at Morgan Stanley downgraded Red Hat to ‘Equal Weight’ from ‘Overweight’, saying that mid-teens billings growth with flat-to-down margins limits upside to free-cash-flow estimates. Ken Griffin’s Citadel Advisors owned 1.02 million shares of Red Hat Inc. (NYSE:RHT) at the end of March.

Leading Operator of Retail Discount Stores Registers Insider Selling As It Nears All-Time High

A long-serving member of Dollar Tree Inc. (NASDAQ:DLTR)’s Board of Directors unloaded some shares this week. Thomas A. Saunders III, Director since 1993 and Lead Independent Director since May 2007, discarded 5,000 shares on Monday at a price tag of $95.50 each. After the recent sale, Mr. Saunders currently owns 2.31 million Dollar Tree shares.

The so-called dollar store stocks have been surging lately, with Dollar Tree Inc. (NASDAQ:DLTR) being no exception. Dollar Tree’s shares hit a new all-time high of $96.00 in early July, after having gained 22% since the beginning of 2016. The leading operator of more than 13,900 retail discount stores recorded net sales of $5.09 billion for the three months ended April 30, up by $2.91 billion year-over-year. The increase was attributable to $2.70 billion of net sales from the acquisition of Family Dollar Stores Inc. in July 2015, sales from the Dollar Tree segment’s new stores, and a 2.3% increase in comparable-store sales. Stephen Mandel’s Lone Pine Capital reported ownership of 11.61 million shares of Dollar Tree Inc. (NASDAQ:DLTR) in its 13F filing for the first quarter.

Strong-Performing Global Software Company Registers Insider Selling

Last but certainly not least, Progress Software Corporation (NASDAQ:PRGS) had one of its most informed executives sell shares this week. On Monday, Chief Accounting Officer Paul A. Jalbert discarded 3,281 shares for $28.91 each and 17,760 shares at $28.93 apiece, trimming his ownership to 4,365 shares.

The global software company has seen its market capitalization spike by 23% since the start of 2016. Most of those gains came after the company released its financial results for its second quarter of fiscal year 2016 ended May 31. Progress Software Corporation (NASDAQ:PRGS)’s revenue for the quarter was $96.1 million, up by 8% on an actual currency basis and by 9% on a constant currency basis. The company’s bottom line was $7.3 million, up from $5.8 million reported a year earlier. Ken Fisher’s Fisher Asset Management increased its position in Progress Software Corporation (NASDAQ:PRGS) by 10% during the April-to-June period, to 846,210 shares.

Disclosure: None