Although conventional wisdom dictates that when insiders are selling shares of their companies, it is time to go negative on the stock, these transactions don’t always take place because of a bearish sentiment, but may occur due to various other reasons. The last few weeks have been fairly volatile for the markets and in times of volatility, it’s not uncommon to see investors, including insiders, panicking. In this article we are going to focus on three stocks, which have recently seen insider selling taking place: OSI Systems, Inc. (NASDAQ:OSIS), HubSpot Inc (NYSE:HUBS), and LyondellBasell Industries NV (NYSE:LYB).
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 more than 118% over the ensuing 3 years, outperforming the S&P 500 Index by nearly 57.6 percentage points (read more 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.
OSI Systems, Inc. (NASDAQ:OSIS) is a Hawthorne, California-based manufacturer and integrated designer of specialized electronic systems. On September 3, Victor S. Sze, who serves as the General Counsel and Executive Vice President of the company, sold 20,000 shares at an average price of $73.58 per unit, reducing his stake to 152,507 shares. The company’s stock had a dramatic fall in April on the back of the third-quarter of fiscal 2015 results, however, since then it has recouped those losses and currently trades up by 2.15% year-to-date. OSI Systems, Inc. (NASDAQ:OSIS) recently declared results for the fourth quarter of fiscal 2015, reporting EPS of $1.22 and revenue of $266.60 million, compared to expectations of EPS of $1.19 on revenue of $265.50 million. Among the funds tracked by us, Brett Barakett‘s Tremblant Capital continued to remain the largest shareholder of OSI Systems, Inc. (NASDAQ:OSIS) at the end of June, owning 342,440 shares.
Moving on to HubSpot Inc (NYSE:HUBS), which saw one of its board directors, Stacey Bishop, selling 51,263shares in multiple transactions between September 1 and September 3 in the price range of $45.69-$46.79 per share. Following these transactions, Bishop now owns 539,048 shares of HubSpot Inc (NYSE:HUBS). Since HubSpot Inc (NYSE:HUBS) has surged by 32.54% since the beginning of 2015, it is quite possible that Bishop reduced her holding in the company to book some profits and to reduce her exposure amid volatility in the overall market. On September 3, UBS AG reiterated its ‘Buy’ rating and $63 price target on the stock, which represents a potential premium of 41.5% to its current trading price. Ken Griffin‘s Citadel Investment Group reduced its stake in the company by more than half during the second-quarter and owns 48,715 shares, as of June 30.
Finally, one of the directors of chemical giant LyondellBasell Industries NV (NYSE:LYB), Milton Carroll, sold 3,000 shares at a price of $84 apiece, reducing his holdings down to 1,901 shares. After seeing a gradual rise throughout the first-half of the year, LyondellBasell Industries NV (NYSE:LYB)’s stock has corrected by 20% and currently trades almost flat year-to-date. The quarterly dividend of $0.78 per share that the company currently pays, translates into an annual dividend yield of roughly 4% at the current price, hence dividend investors should keep an eye on the company. Cowen and Company’s analysts reiterated their ‘Outperform’ rating on the stock on September 1, while reducing their price target to $98 from $115, which now represents a potential upside of 22%. One of the hedge funds that initiated a stake in LyondellBasell Industries NV (NYSE:LYB) during the April-June period was Christopher A. Winham‘s Tide Point Capital, which owned 200,000 shares of the company at the end of June.
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