Although insider selling doesn’t always mean that insiders of a company have started to become bearish on it, if it occurs at times when markets are in turbulence, it acts as a double whammy for investors of such stocks. We at Insider Monkey track insider trading activity diligently because most of the time, it is a precursor to the kind of move a stock will make in the short to medium-term. Three stocks which surfaced on our radar due to notable insider selling recently are: Campbell Soup Company (NYSE:CPB), Avnet, Inc. (NYSE:AVT), and Sterling Bancorp (NYSE:STL). In this article we are going to take a closer look at these companies, revealing the insider trading activity and performance of these stocks.
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 over 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.
Let’s start with Campbell Soup Company (NYSE:CPB). Carlos Barroso, who serves as a Senior Vice President at the company, sold 1,650 shares on September 9 at a weighted average price of $49.32 per share. Following this transaction, Mr. Barroso now owns 44,967 shares of the company. Campbell Soup Company (NYSE:CPB) is one of the fortunate stocks that is still trading in the green this year, up by over 10% year-to-date. On September 3, the company declared its fiscal fourth quarter 2015 financial results, reporting EPS of $0.43 on revenue of $1.69 billion, compared to the EPS of $0.42 on revenue of $1.69 billion that analysts had expected. Following the earnings release analysts at Morgan Stanley reiterated their ‘Sell’ rating on the stock on September 4, while upping their price target to $47 from $45, which is still beneath the current price. Several marquee investors and hedge funds had Campbell Soup in their investment cupboards at the end of June, including Mario Gabelli‘s GAMCO Investors, which owned slightly above 800,000 shares.
Moving on, electronics distributor Avnet, Inc. (NYSE:AVT) saw its Senior Vice President and Chief Human Resources and Corporate Communications Officer, Maryann G. Miller, dispose of 9,562 shares in multiple transactions on September 9 at a weighted average price of $42.45, reducing her total stake in the company to 37,373 shares. Even though they have dipped by 7.3% during the second quarter, shares of Avnet have been fairly range-bound this year, moving in the range of $40-$46 and are trading nearly flat for the year. The company recently hiked its quarterly dividend to $0.17 from $0.16, offering a current yield of 1.60%. Analysts are generally bullish on the company, with five out of seven analysts who cover the stock having a ‘Buy’ rating on it. Clifton S. Robbins‘ Blue Harbour Group initiated a stake in the company by purchasing around 2.85 million shares during the April-June period and at the end of June was the second-largest shareholder of Avnet, Inc. (NYSE:AVT) among the funds we track.
Finally, let’s dissect the insider selling in holding company, Sterling Bancorp (NYSE:STL). On September 9, Craig S Thompson, an Independent Director of the company sold 2,006 shares and 994 shares in separate transactions, at prices of $14.27 and $14.26 per share, respectively. Accounting for these two transactions, Mr. Thompson now owns 282,067 shares of Sterling Bancorp (NYSE:STL) directly and 85,607 shares indirectly. Similar to Avnet, shares of Sterling Bancorp have also remained range-bound in 2015, moving in between $13 and $15. However, the greater than 10% rise they enjoyed from May until the end of June has ensured that even in the wake of the recent volatility in the markets, they are still trading flat for the year. Analysts at Keefe, Bruyette & Woods reiterated their ‘Hold’ rating on the stock on July 31, but increased their price target to $17 from $15.50, which represents a potential upside of 18.8%. Billionaire Israel Englander‘s Millennium Management was one of the hedge funds that brought its holding in the company down significantly during the April-June period, reducing its stake by 54% to 925,127 shares.
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