Are These Insiders Giving Away Valuable Short-Selling Trading Ideas?

The Standard and Poor’s 500 Index has posted gains in seven out of the past eight trading sessions, which could somewhat bring to a close the so-called correction. But what has been driving up the market over the past few days? It appears that the constantly decreasing probability of seeing a rate hike this year represents one of the main forces driving it. However, the fundamentals have not strengthened meaningfully lately. On the contrary, there are signs of weakening in the U.S economy and in some economies of the European Union. In addition to that, some might have already forgotten Carl Icahn’s warnings, and his thoughts are far from being deceptive. Leaving the discussion about fundamentals and economic worries aside, we will now refocus our attention on three companies that had a large volume of insider selling activity recently. The companies in question are Tech Data Corp (NASDAQ:TECD), Herman Miller Inc. (NASDAQ:MLHR), and Span-America Medical Systems Inc. (NASDAQ:SPAN). Ultimately, the article will discuss possible reasons why these companies’ insiders decided to unload their holdings amid a broader market rally.

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.

We can start our discussion by looking into the insider selling activity at Tech Data Corp (NASDAQ:TECD), a wholesale distributor of technology products, services, and solutions. Alain Amsellem, Senior Vice President and Chief Financial Officer of Europe at Tech Data, sold 2,755 shares earlier this week at prices between $73.77 and $73.85. The executive currently owns 27,633 shares, 7,062 of which represent unvested Restricted Stock Units (RSU). Director David M. Upton also offloaded 1,500 shares at a sale price of $72.22 per share, trimming his stake to 15,556 shares. His current holding also includes 1,751 RSUs. The company has had a strong year in terms of stock performance, with its shares advancing by more than 20% since the beginning of the year. The performance has been supported by Tech Data’s financial results, which have been nonetheless been impacted by the strong U.S dollar. The company outlined in its latest earnings release that it anticipates year-over-year local currency sales growth in the mid-single digits in the Americas for the third quarter, and mid-to high-single digits sales growth in Europe. Cliff Asness’ AQR Capital Management is one of the top equity holders of Tech Data Corp (NASDAQ:TECD) within our database, holding nearly 478,000 shares.

Next up is Herman Miller Inc. (NASDAQ:MLHR), a manufacturer of office furniture, equipment and home furnishings. Donald D. Goeman, who has served as Executive Vice President of Research, Design and Development since 2005, offloaded 2,633 shares this week in several lots, with prices ranging from $30.15 to $30.16. Following the transactions, he holds 6,920 shares, including an additional 1,624 shares owned indirectly. It is also worth pointing out that Donald Goeman sold 6,279 shares last week as well, at a weighted average sales price of $27.67. The company’s stock performance in 2015 has been quite volatile within close ranges; however, the shares are still slightly over 4% in the green year-to-date. On September 16, Herman Miller released a strong earnings report for the fiscal first quarter of 2016, ended August 29, 2015. The company reported net sales of $565.4 million and net earnings per share of $0.56 compared to $509.7 million and $0.42 reported a year ago. Sahm Adrangi’s Kerrisdale Capital acquired a new stake of nearly 367,000 shares in Herman Miller Inc. (NASDAQ:MLHR) during the June quarter.

Lastly, we will investigate the insider selling activity at Span-America Medical Systems Inc. (NASDAQ:SPAN), a provider of medical appliances and equipment. Director Robert B. Johnston reported selling his entire stake of 12,000 shares at a price of $17.49 per share a little more than a week ago. This move comes after the Director stepped down from the company’s Board of Directors earlier this month. Span-America Medical Systems repurchased these 12,000 shares, including 249,310 shares owned by The Zucker Revocable Trust, an affiliate of Robert Johnston. Meanwhile, the company’s shares have gained more than 2% since the beginning of the year despite facing a few sharp pullbacks, Span-America anticipates its sales and earnings for the current quarter to be higher than the same quarter last year, thanks to an expected growth in medical and custom products sales. Jim Simons’ Renaissance Technologies reported owning 63,200 shares of Span-America Medical Systems Inc. (NASDAQ:SPAN) via its 13F filing for the June quarter.

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