In the past few days, during which the equity markets have slowly started to climb back to the levels from which they fell last month, we have witnessed insiders of some companies making full use of this bounce to sell some of their shares. Although insider selling usually signals that insiders of a company don’t believe that the company will do particularly well in the near future, it’s not always the case, as sometimes insiders just like regular investors, sell their shares to fund expenses or diversify their portfolios. In this article we will be looking closely at the insider selling that took place recently in Boingo Wireless Inc (NASDAQ:WIFI), Health Care REIT, Inc. (NYSE:HCN), and FibroGen Inc (NASDAQ:FGEN), and analyze why insiders are ditching shares of these companies.
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Let’s start with the insider selling in Boingo Wireless Inc (NASDAQ:WIFI). On September 14, Peter Hovenier, who serves as the Chief Financial Officer of the company, sold 10,000 shares at a weighted average price of $7.38 per share. Accounting for this transaction, Mr. Hovenier now owns 56,451 shares of Boingo Wireless. Even after declining by more than 20% in August alone, shares of the commercial Wi-Fi provider are trading nearly flat for 2015, owing to the rise they had earlier in the year. On September 11, Boingo Wireless Inc (NASDAQ:WIFI) filed a Form S-3 with the SEC in pursuance of which it has been allowed to issue up to $125 million worth of new securities. Adam Usdan‘s Trellus Management Company was one of the hedge funds that initiated a stake in the company during the second quarter; as of June 30, it held 51,600 shares.
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 117% 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.
Moving on, Fred Klipsch, an Independent Director at Health Care REIT, Inc. (NYSE:HCN), sold 29,521 shares of the company on September 15 at a weighted average price of $63.95 per share and now owns 9,428 shares of the company directly and 11,341 shares indirectly, through a revocable trust. Although shares of Health Care REIT, Inc. (NYSE:HCN) have gradually declined throughout the year and currently trade down by 16% year-to-date, this decline has resulted in the annual dividend yield of the company rising significantly, to 5.12%. A majority of analysts and experts who track the stock believe that it is currently trading in the oversold territory. Billionaire David E. Shaw‘s firm D E Shaw more than quadrupled its stake in the company during the second quarter, to 593,749 shares.
Finally, let’s look at the insider selling in research-based biopharmaceutical company FibroGen Inc (NASDAQ:FGEN). Rory Riggs, an Independent Director of the company, disposed of 25,571 shares at a weighted average price of $27.56 per share on September 14, bringing his direct ownership in the company down to 480,200 shares. Mr. Riggs also owns 605,713 shares of FibroGen Inc (NASDAQ:FGEN) indirectly through New Ventures I, LLC. FibroGen’s stock had had a U-shaped journey in 2015 up to this point and currently boasts year-to-date gains of 7.64%. Though the stock fell by only 25% during the second quarter, the aggregate value of stakes in the company held by hedge funds we cover more than halved during that time, to $111.27 million from $232.85 million. On July 29, analysts at Citigroup initiated coverage on FibroGen’s stock with a ‘Buy’ rating and $37 price target, representing 63% upside at the time; shares have since risen by over 30%. Phill Gross and Robert Atchinson‘s Adage Capital Management was the largest shareholder of the company among the funds we track, owning over 2.5 million shares at the end of June.
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