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These Insider Sales Could Indicate That The Bull Market Has Run Its Course

The International Monetary Fund recently reduced its 2015 global growth estimates to 3.1% from 3.3%, pointing to the low-price commodity environment and China’s economic slowdown. If there is anyone who thinks that a global economic slowdown does not have any negative effects on the U.S economy, he or she is quite wrong. At the same time, analysts expect the third quarter earnings for the companies which make up the Standard and Poor’s 500 to decline by 4.2% year-over-year, so there are numerous facets one should consider when jumping into the market. Some companies’ insiders have been unloading their holdings lately, which could add to the growing concerns about a possible continuation of the bear market, or the so-called “correction”. This article will discuss the insider selling activity at Dave & Buster’s Entertainment Inc. (NASDAQ:PLAY), Frequency Electronics Inc. (NASDAQ:FEIM), and Corcept Therapeutics Incorporated (NASDAQ:CORT). It is also worth pointing out that we do not consider the sales conducted under trading plans, which emphasizes the notable aspect of these trades.

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 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 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 118% over the ensuing 36 months, outperforming the S&P 500 Index by 60 percentage points (read the 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.

Getting back to our discussion, Dave & Buster’s Entertainment Inc. (NASDAQ:PLAY) has seen an unusual volume of insider selling this week. However, most of this activity was related to recently-vested stock options. Insiders regularly exercise options and then sell all of the freshly-acquired shares, so those transactions might not be informative at all. Thus, we will focus only on the worthwhile insider trades. Director Jonathan S. Halkyard offloaded 5,750 shares at a price of $35.61 per share, reducing his stake to 24,936 shares. Moreover, Jay L. Tobin, who has served as the Senior Vice President, General Counsel, and Secretary of the company since May 2006, reported selling 28,750 shares for $35.61 each after exercising 17,250 shares. Following these transactions, the executive currently holds 102,071 shares. It is no surprise that some corporate insiders at Dave & Buster’s Entertainment decided to cash out a portion of their stakes considering the great performance of the stock so far this year. The shares of the owner and operator of dining and entertainment venues have advanced by more than 50% since the beginning of the year despite facing minor pullbacks. Donald Chiboucis’ Columbus Circle Investors represents the top equity holder of Dave & Buster’s Entertainment Inc. (NASDAQ:PLAY) within our database, owning slightly more than 638,000 shares.

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Let’s now move on to Frequency Electronics Inc. (NASDAQ:FEIM), which had its current Chairman of the Board sell stock this week. Joseph P. Franklin, who is also a former Chief Executive Officer of Frequency Electronics, reported selling 2,000 shares at prices of $10.26 and $10.10 per share. After the recent transactions, the Chairman possesses 16,870 shares, along with an additional 2,616 shares held indirectly through a Charitable Foundation. A few weeks ago, the provider of precision time and frequency technology posted its earnings report for the first quarter of fiscal 2016. The company reported revenues of $16.7 million, down from $19.7 million reported a year ago. Nevertheless, Frequency Electronics’ net income increased year-over-year to $891,000 from $719,000. The company’s stock performance has not been overly great in 2015, as the shares are 11% in the red year-to-date. Meanwhile, Royce & Associates, founded by Chuck Royce, was bullish on Frequency Electronics Inc. (NASDAQ:FEIM) at the end of the second quarter, as it disclosed having an ownership stake of more than 368,000 shares as of that date in its most recent 13F filing.

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Finally, Corcept Therapeutics Incorporated (NASDAQ:CORT)’s Vice President of Commercial Operations, Steven Lo, unloaded 50,000 shares at a weighted average sale price of $3.76. The executive currently holds 58,333 shares valued at approximately $217,000. A little more than a week ago, the pharmaceutical company announced that Robert S. Fisherman was appointed Chief Medical Officer, with him anticipated to assist Corcept in developing its cortisol modulation platform and other products. Corcept Therapeutics is engaged in the development of drugs for the treatment of severe metabolic, oncologic, and psychiatric disorders, and is currently working on numerous key projects. To be more specific, its lead next-generation cortisol modulator is close to entering several Phase 2 studies, which means that the company is slowly moving towards bringing its candidates to the market. Let’s not forget to mention that the shares of the pharmaceutical company have advanced by 25% year-to-date, so the executive might be fearing a continued selloff of pharma and biotech stocks. Jim Simons’ Renaissance Technologies significantly boosted its position in Corcept Therapeutics Incorporated (NASDAQ:CORT) during the second quarter, to slightly over 501,000 shares.

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Disclosure: None

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