Apple Inc. (AAPL) Supplier Among 3 Hot Stocks to Witness Insider Selling

Extensive research shows that corporate insiders are better at investing in equities than “index-tracking” investors, which is not overly surprising given their in-depth knowledge about their companies’ businesses and industries. Indeed, insiders are restricted from trading on material non-public information, but that does not impede them from making well-timed trades. At the end of the day, insiders have their own perceptions about the future potential of their companies, as do analysts and investors. Moreover, insiders’ investment decisions tend to be very rewarding on most occasions, as their trades beat broader market indexes on aggregate. Insiders’ investment technique or approach resembles the one employed by value-oriented investors, so their trades can assist outside investors in making more informed investment decisions. The Insider Monkey team pinned down three companies, all of which have performed well in 2016 in the face of a bear market, that witnessed notable insider sales over the past several days, so the following article will focus on the insider trading activity observed at those companies.

Prior to discussing the insider trading activity, let’s make you familiar with what Insider Monkey does. At Insider Monkey, we track hedge funds’ moves in order to identify actionable patterns and profit from them. But why do we track hedge fund activity? From one point of view we can argue that hedge funds are consistently underperforming when it comes to net returns over the last three years, when compared to the S&P 500. But that doesn’t mean that we should completely neglect their activity. There are various reasons behind the low hedge fund returns. Our research indicated that hedge funds’ long positions actually beat the market. In our back-tests covering the 1999-2012 period, hedge funds’ top small-cap stocks beat the S&P 500 index by double digits annually (read the details here).

The insider selling activity at Range Resources Corp. (NYSE:RRC) has been very high in the past few months, which is somewhat unusual for a natural gas and oil company. However, some insider trades were made in connection with the payment of withholding taxes, and should not serve as a point of interest. On the other hand, according to a freshly-filed Form 4, Senior Vice President Chad L. Stephens sold 25,199 shares on Tuesday at a price of $27.18 per share. Following the recent sale, the SVP currently holds a direct ownership stake of 100,846 shares. The stock of the independent natural gas, natural gas liquids (NGLs) and oil company is down by 44% over the past 12 months, but has gained nearly 17% so far in 2016. Crude oil prices are still trading at multi-year lows, so the 17% gain could be explained by increased investor interest from “crude oil” bulls. For instance, billionaire Andreas Halvorsen of Viking Global purchased a new stake of 11.59 million shares in RRC earlier this month, which accounts for 6.8% of the company’s outstanding shares.

RRC’s revenue from the sale of natural gas, NGLs and oil dropped by 44% year-over-year during the first nine months of 2015, in tandem with the decline in the stock price, mainly owing to the decline in commodities prices. However, Range Resources Corp. (NYSE:RRC)’s revenue including cash settlements on its derivatives for the nine months that ended September 30 declined by only 13% relative to the same period of 2014. Furthermore, the company’s long-term debt amounted to $3.6 billion on September 30, while its cash reached a figure of only $490,000. Even so, the company had $876.2 million of borrowing capacity available under its facility at the end of the third quarter. Hence, RRC’s available borrowing capacity, net cash from operating activities, and existent oil derivative contracts are believed to be sufficient to cover financial obligations and liquidity needs in the upcoming quarters. A total of 31 hedge funds tracked by Insider Monkey had positions in RRC at the end of the third quarter, amassing nearly 14% of the company’s total shares.

Let’s head to the next page of this article, where we discuss the insider sales witnessed at American Electric Power Company Inc. (NYSE:AEP) and Cirrus Logic Inc. (NASDAQ:CRUS).

American Electric Power Company Inc. (NYSE:AEP) is another company that had an insider sell stock this week. Director Lionel L. Nowell III sold out his entire stake of 8,209 shares on Tuesday for exactly $62 each, which might suggest that the stock hit a technical level which automatically triggered the sale of the entire position. The utility company has seen its shares advance by more than 8% thus far in 2016 and is closing in on its 52-week high, which somewhat justifies the Director’s sale given the high volatility and increased concerns in the market.

Just recently, the provider of electricity released its fourth-quarter earnings report, which was received very well by the market despite missing both top- and bottom-line estimates. American Electric Power Company reported revenue of $16.5 billion for 2015, up from $16.4 billion reported a year earlier. At the same time, the company’s GAAP earnings for 2015 reached $2.05 billion or $4.17 per share, compared to $1.63 billion or $3.34 per share reported for 2014. Meanwhile, the stock trades at a forward price-to-earnings ratio of 16.18, which is slightly above the ratio of 15.2 for the electric utilities industry. Therefore, the Director’s recent sale appears to be quite well-timed if bearing in mind the increased worries about a potential U.S recession. There were 29 smart money investors from our database with positions in the company at the end of September, stockpiling nearly 3% of its outstanding shares. Israel Englander’s Millennium Management is the owner of 5.95 million shares of American Electric Power Company Inc. (NYSE:AEP) as of September 30.

Cirrus Logic Inc. (NASDAQ:CRUS) is another strong performer in 2016 that witnessed recent insider selling. Scott A. Anderson, Senior Vice President and General Manager-Mixed Signal Audio Division, unloaded 12,713 shares on Monday at prices that ranged from $35.22 to $35.29 per share, trimming his stake to 16,966 shares. The stock of the developer of high-precision, analog and mixed-signal integrated circuits (ICs) is up by almost 14% so far in 2016, and by 20% over the past 12 months. The company supplies Apple Inc. (NASDAQ:AAPL) with audio chips, which accounted for 76% of Cirrus Logic’s net sales for the third quarter of fiscal year 2016. Cirrus generated 67% of net sales for the first nine months of fiscal year 2016 that ended December 26 from Apple and 15% from Samsung Electronics. The company’s net sales for that period totaled $937.3 million, marking an increase of 42% year-over-year. Furthermore, net sales from portable audio products grew by 51% year-over-year due to sustained organic growth in portable products. It should also be noted that the stock trades at a forward P/E multiple of 11.82, which is well below the average of 15.89 for the companies included in the S&P 500. Most importantly, the company’s gross margin increased in the third quarter of fiscal year 2016 to 47.4%, from 43.8% registered a year earlier. 30 smart money investors tracked by our team were invested in Cirrus Logic at the end of the third quarter, owning nearly 12% of the company’s total shares. Joel Greenblatt’s Gotham Asset Management owned 1.14 million shares of Cirrus Logic Inc. (NASDAQ:CRUS) at the end of September.

Disclosure: None