Insider Selling Metric Points To Limited Upside For These 3 Stocks

Extensive research has shown that corporate insiders make more profitable trades in their companies’ stock on aggregate than individual investors. At the end of the day, officers and directors have more sound knowledge about their companies’ ongoing challenges, upcoming developments, and future prospects than any of us. Many tend to think that insider buying is more straightforward to interpret and more informative than insider selling, as insiders can sell shares for numerous reasons unrelated to their companies’ prospects, including tax payments, personal cash needs, among other things. Of course, this line of thought is perfectly accurate, but heavy insider selling activity still raises red flags among investors. The Insider Monkey team identified several noteworthy insider sales reported with the U.S. SEC, so this article will primarily focus on discussing the insider selling activity registered at three companies and the performance of these companies.

Prior to discussing the insider trading activity, let’s make you familiar with what Insider Monkey does. We track hedge funds and prominent investors because our research has shown that historically their stock picks delivered superior risk-adjusted returns. This is especially true in the small-cap space. The 50 most popular large-cap stocks among hedge funds had a monthly alpha of about 6 basis points per month between 1999 and 2012; however the 15 most popular small-cap stocks delivered a monthly alpha of 80 basis points during the same period. This means investors would have generated 10 percentage points of alpha per year simply by imitating hedge funds’ top 15 small-cap ideas. We have been tracking the performance of these stocks since the end of August 2012 in real time and these stocks beat the market by 53 percentage points (102% return vs. S&P 500’s 48.7% gain) over the last 38 months (see the details here).

Cinemark Holdings Inc. (NYSE:CNK) had an officer selling big this week. President of Cinemark International Valmir Fernandes unloaded 20,000 shares on Monday at prices that ranged from $32.11 to $32.29 per share, cutting his stake to 120,346 shares. The Cinemark movie theatre chain operator has seen its shares decline by 8% this year. Nonetheless, the stock trades at an attractive trailing price-to-earnings ratio of 18.30, which is below the average of 22.65 for the companies included in the S&P 500. Cinemark Holdings Inc. (NYSE:CNK)’s total revenues for the nine months ended September 30 totaled $2.15 billion, as compared with $1.97 billion reported for the same period of 2014. This top-line growth was mainly achieved due to an increase in attendance, which was in turn boosted by a strong slate of movies released this year and additional theatres. The company’s U.S. theatre portfolio comprised 4,489 screens on September 30. Cinemark build four new theatres with 50 screens during the first nine months of this year, and closed five theatres with 60 screens. A total of 19 smart money investors from our database had positions in the company at the end of the September quarter, stockpiling 7.30% of its outstanding common stock. Jim Simons’ Renaissance Technologies is the largest equity holder of Cinemark Holdings Inc. (NYSE:CNK) within our database, holding 3.39 million shares as of September 30.

Let’s head to the next page of this article, where we disclose the insider sales reported at Tejon Ranch Company (NYSE:TRC) and Natural Gas Services Group Inc. (NYSE:NGS).

Tejon Ranch Company (NYSE:TRC) also saw an officer selling shares earlier this week. Dennis Atkinson, Senior Vice President of Agriculture and Water Resources, reported selling 20,000 shares this Tuesday at a price of $19.47 per unit and currently owns 19,251 shares. The shares of this diversified real estate development and agribusiness company have lost 33% this year, presumably due to weaker financial performance. The company reported net income of $1.24 million for the first nine months of 2015, down from $3.74 million reported for the same period of 2014. The bottom-line figure declined year-on-year due to lower mineral resources revenues, which were impacted by lower oil prices, and a reduction in farm revenues. Similarly, Tejon Ranch’s revenues decreased to $35.58 million from $36.51 million year-over-year due to lower mineral resources revenues and farming revenues, which were in turn offset by higher commercial/industrial revenues. The company’s core asset is roughly 270,000 acres of underdeveloped land 60 miles north of Los Angeles, while its business model involves holding land for commercial/industrial and resort/residential uses. Hence, this portion of land might represent a flourishing revenue stream if considering that the nation’s largest population centers are anticipated to grow in the forthcoming future. Martin Whitman’s Third Avenue Management cut its stake in Tejon Ranch Company (NYSE:TRC) by 2% during the July-to-September period to 2.29 million shares.

Let’s refocus our attention on the insider selling activity reported at Natural Gas Services Group Inc. (NYSE:NGS). To begin with, Chief Financial Officer G. Larry Lawrence offloaded 8,000 shares on Friday at $20.34 apiece, trimming his holding to 36,845 shares. Vice President of Technical Services James R. Hazlett sold 6,500 shares over the past week or so at a weighted average price of $20.27, and currently holds a 53,356-share position. The manufacturer and provider of natural gas compressors and other related equipment has had a relatively strong year, despite facing an extremely challenging environment. Meanwhile, the stock is down by 5% for the year, but still trades at a rather expensive trailing P/E ratio of 25.55. It is commonly known that a low oil and gas price environment has forced companies to cut their capital expenditures for drilling, development and production activities. Consequently, lower capital expenditures result in depressed revenues and profits for services and equipment companies. Nonetheless, Natural Gas Services Group reported total revenues of $70.16 million for the nine months that ended September 30, up from $69.87 million posted for the same period a year ago. This increase was mainly attributable to a weaker-than-expected decline in demand from the energy industry and a higher rental rate of low-to-mid horsepower lift compression. A mere nine hedge funds tracked by our team were invested in the company on September 30, accumulating nearly 14% of its outstanding shares. Matthew A. Weatherbie of Weatherbie Capital reported owning 530,175 shares of Natural Gas Services Group Inc. (NYSE:NGS) through the latest round of 13Fs.

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