Prominent insider sales were detected in Royal Gold, Inc (NASDAQ:RGLD), OSI Systems, Inc. (NASDAQ:OSIS), and Best Buy Co Inc (NYSE:BBY) this past week. If you’re wondering about the usefulness of monitoring such transactions, there are many studies to that end that prove insider trading activity is worth paying attention to. Quite simply, it is rather obvious that a company’s management has the best view of its prospects, and we get a glimpse of that through their trades. However, it should be noted that not all insider sales are necessarily a bearish signal; some sales me be made to re-balance investment portfolios, or for other financial purposes. However, it should also be noted that we only cover insider sales that were not conducted through trading plans, and thus could be defined as spur-of-the-moment trades. Now then, let’s deconstruct the insider sales in question and find out if there is a bearish trend lurking in the background.
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Besides insider trading we also play close attention to hedge fund sentiment. Most investors ignore hedge funds’ moves because as a group their average net returns trailed the market since 2008 by a large margin. Unfortunately, most investors don’t realize that hedge funds are hedged and they also charge an arm and a leg, so they are likely to underperform the market in a bull market. We ignore their short positions and by imitating hedge funds’ stock picks independently, we don’t have to pay them a dime. Our research have shown that hedge funds’ long stock picks generate strong risk adjusted returns. For instance the 15 most popular small-cap stocks outperformed the S&P 500 Index by an average of 95 basis points per month in our back-tests spanning the 1999-2012 period. We have been tracking the performance of these stocks in real-time since the end of August 2012. After all, things change and we need to verify that back-test results aren’t just a statistical fluke. We weren’t proven wrong. These 15 stocks managed to return 118% over the last 36 months and outperformed the S&P 500 Index by over 60 percentage points (see the details here).
Royal Gold, Inc (NASDAQ:RGLD)’s CEO and President Tony Jensen liquidated about 30,500 shares recently, taking his remaining holdings to about 189,700 shares. If we look at the company’s stock price, it is down by more than 24% so far this year, but analysts seem to be divided on where the $3.11 billion company is heading from here. While Goldman downgraded the stock earlier this month to ‘Neutral’ from ‘Buy’, FBR Capital initiated coverage on the company on Friday with an ‘Outperform’ rating and a price target of $56. Among the hedge funds that we track, the sentiment towards Royal Gold was bullish during the second quarter, as the number of hedge funds holding the company increased to 18 with $278.26 million in shares compared to 16 funds with holding worth $161.72 million at the end of the previous quarter. First Eagle Investment Management, which is the largest stockholder of Royal Gold, Inc (NASDAQ:RGLD) among these funds , increased its stake by 180% during the second quarter to 2.94 million shares valued at $180.99 million.
