Insider Selling Dominates Recent Insider Trading Activity as Second-Quarter Earnings Season Gets Underway

Insider Monkey readers are well aware that our team ignores insider buying and selling conducted under pre-arranged trading plans, as well as insider selling related to freshly-exercised stock options or selling related to tax obligations. Put it differently, our team attempts to get rid of predictable “routine” insider trading that is not informative for the future of firms.

As U.S. equity markets continue chasing new all-time highs and the second-quarter earnings season kicked off earlier this week with the release of Alcoa Inc. (NYSE:AA)’s earnings report, insider trading activity has been slowing down quite significantly. More importantly, there was no spur-of-the-moment insider buying reported with the SEC on Thursday, so retail investors seeking for investment opportunities based on insider buying metrics might have to wait for a broader market pullback before witnessing noteworthy insider buying again. Meanwhile, most insider trading activity, particularly insider selling, is conducted under the so-called 10b5-1 trading plans, the “routine” kind of insider trading investors should mostly overlook. However, there were several companies that registered spontaneous insider selling earlier this week, so this article will discuss the insider activity observed at three 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).

Snack and Beverage Giant Registers Increased Insider Selling Near 52-Week High

PepsiCo Inc. (NYSE:PEP) had four different executives sell shares this week, with three of them selling solely freshly-exercised stock options. Laxman Narasimhan, Chief Executive Officer of Latin America at PepsiCo, discarded 3,219 shares on Wednesday at prices varying from $109.11 to $109.12 per share, cutting his overall holding to 97,057 shares. Some of these shares were sold to cover broker commissions.

The shares of the diversified snack and beverage company are trading near their 52-week high after the stock has advanced 10% thus far in 2016. Corporate insiders usually follow the pattern of “buying low and selling high”, so the recent insider selling at PepsiCo Inc. (NYSE:PEP) does not seem surprising at all. Furthermore, the insider selling comes after the snack-and-beverage giant released better-than-expected revenue and profit for the second quarter of 2016. Just recently, analysts at Deutsche Bank raised their price target on PepsiCo to $120 from $115 and reiterated their “Buy” rating on the stock, arguing that “with scared and yield-starved investors flocking to staples, telecom, utilities and bonds, PepsiCo has a unique balance of decent organic growth, clear margin and earnings flexibility and reasonable valuation”. Deutsche Bank says that as long as interest rates remain at low levels and the macroeconomic environment remains uncertain, “PEP is as good a place as any to hide”.

The number of hedge fund managers followed by Insider Monkey with equity investments in PepsiCo increased to 65 from 58 during the first quarter. Ken Fisher’s Fisher Asset Management upped its stake in PepsiCo Inc. (NYSE:PEP) by 2% during the second quarter to 5.43 million shares.

Let’s head to the next page of this insider trading article, where we will discuss the recent insider selling registered at two other companies.

Youth Fashion Retailer Registers Insider Selling amid Constantly-Falling Sales

Buckle Inc. (NYSE:BKE) saw one member of its executive team unload some shares earlier this week. Kelli D. Molczyk, Vice President of Women’s Merchandising, unloaded 4,000 shares on Wednesday at a price tag of $26.71 each. After the recent sale, Ms. Molczyk currently holds an ownership stake of 21,163 shares.

The youth fashion retailer has seen its market value plunge by 15% since the beginning of 2016, as the company’s sales figures disappointed investors. Buckle Inc. (NYSE:BKE)’s net sales for the first quarter of fiscal 2016 that ended April 30 were $243.54 million, down 10.2% year-over-year. Comparable store net sales dropped by 11.1% year-on-year, due to a 9.3% reduction in the number of transactions, a 0.4% reduction in the average number of units sold per transaction and a 0.3% reduction in the average retail price per piece of merchandise sold. The company’s comparable store sales figure was also slightly impacted by an adjustment associated with estimated future rewards related to the company’s Guest Loyalty program launched during the quarter. More importantly, Buckle’s business fundamentals are not improving at all, as the company’s June comparable store net sales fell 10.6% year-on-year.

Buckle shares are currently changing hands at around 10.1-times expected earnings, massively below the forward PE multiple of 18.2 for the apparel retail industry. The fashion retailer received some love from the hedge funds monitored by our team during the March quarter, as the number of funds invested in the company jumped to 16 from 11 quarter-on-quarter. Royce & Associates, founded by Chuck Royce, was the owner of 4.35 million shares of Buckle Inc. (NYSE:BKE) on March 31.

Drone Maker Registers Cluster of Insider Selling

AeroVironment Inc. (NASDAQ:AVAV) witnessed a cluster of insider selling this week, the kind of insider selling investors should keep close attention to. To start with, Douglas E. Scott, Senior Vice President and General Counsel, unloaded 368 shares on Tuesday at a price tag of $27.49 each, cutting his stake to 18,014 shares. Raymond D. Cook, Chief Financial Officer and Senior Vice President, discarded 1,121 shares on the same day at $27.49 apiece, after which he currently owns 13,879 shares. Last but certainly not least, President and CEO Wahid Nawabi sold 2,634 shares on Tuesday at a price of $27.49 per share. After the recent sale, the CEO currently holds 36,760 shares.

The supplier of unmanned aircraft systems, tactical missile systems and services to organizations within the U.S. Department of Defense has seen the value of its stock drop by 6% since the start of the year. AeroVironment Inc. (NASDAQ:AVAV)’s revenue for fiscal 2016 that ended April 30 was $264.10 million, up from $259.40 million recorded a year ago. The increase was attributable to a jump in service revenue of $20.3 million, partially offset by lower product deliveries of $15.6 million. As the Federal Aviation Administration anticipates annual sales of drones for commercial purposes to grow from 600,000 in 2016 to 2.7 million by 2020, drone maker AeroVironment may be one of the primary beneficiaries of this promising trend.

There were a mere six asset managers followed by Insider Monkey invested in the company known for its drones, such as RQ-11B Raven, at the end of the March quarter. David Park’s Headlands Capital had 510,000 shares of AeroVironment Inc. (NASDAQ:AVAV) in its portfolio at the end of the first quarter.

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