There are not many indicators pointing to a potential recession in the U.S. in the months or years ahead. On the contrary, it seems that the economy of the United States has been gaining pace for some time. For instance, the Commerce Department announced yesterday that retail sales increased 0.2% in August, after rising by 0.7% in July. On aggregate, sales have risen by 2.2% over the past one-year period, primarily driven by the strong hiring throughout the nation. Nevertheless, the executives of some companies were offloading their firm’s shares yesterday, which might suggest that the prospects at those companies are not particularly strong, at least short-term. In the following article we will take a thorough look at the insider selling activity at these companies: Public Service Enterprise Group Inc. (NYSE:PEG), Tutor Perini Corp (NYSE:TPC), and Pinnacle Financial Partners (NASDAQ:PNFP). But let’s not forget to mention that insiders might sell their companies’ stock for reasons that are not linked to the companies’ future outlook or prospects. Therefore, we will attempt to stipulate the reasoning behind these latest insiders’ moves.
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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 118% 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.
Let’s begin by examining the insider selling activity at Public Service Enterprise Group Inc. (NYSE:PEG). William Levis, President and Chief Operating Officer of PEG’s subsidiary PSEG Power LLC, sold 13,106 shares on Monday at a weighted average price of $39.29 per share. Following these sell-offs, the executive currently holds 22,476 shares. The shares of the diversified energy company have been seriously hit by the recent broader market selloff and have not shown any signs of recovery yet. The year-to-date performance has not been too great either, as the stock has lost over 5% thus far. At the end of August, PSEG Solar Source, a subsidiary of PSEG Power, announced the acquisition of the Columbia Solar Project from Hanergy America Solar Solutions. The freshly-acquired facility consists of 83,000 solar panels and will assist PSEG in meeting California’s mandate that 33% of the energy sold by utilities must come from renewable resources by 2020. Cliff Asness’ AQR Capital Management, one of the 737 hedge funds tracked by Insider Monkey, increased its stake in Public Service Enterprise Group Inc. (NYSE:PEG) by approximately 7% during the latest quarter to 5.88 million shares.
Tutor Perini Corp (NYSE:TPC) is another company that saw an insider sell shares yesterday. The company’s President and Chief Operating Officer, James A. Frost, unloaded 5,000 shares for $17.27 each, trimming his stake to 462,226 shares. It’s worth noting that the executive, who has been with the company for more than 25 years, has been gradually cashing out his sizable stake over the last few months. The recent selloffs might be explained by the company’s poor stock performance this year (the stock has lost 28% year-to-date), which has been partially impacted by unexpected losses on some of the company’s projects. The second-quarter results of Tutor Perini Corp (NYSE:TPC), a civil and building contracting company, were accompanied by strong revenue growth and a stable backlog, which were in turn offset by lower-than-expected operating income. The operating income was impacted by the significant loss on the company’s Hudson Yards Tower C concrete project. Dreman Value Management, founded by David Dreman, added a 438,329 share-position in the stock to its portfolio during the second quarter.
Lastly, Pinnacle Financial Partners (NASDAQ:PNFP) saw Director William H. Huddleston sell 1,679 shares at a price of $48.63 per share on Monday. After yesterday’s transaction, the director owns a stake of 47,251 shares. The shares of Pinnacle have had a great run this year, until the broader market “correction” started in mid-August. Even so, the stock has delivered a return of 23% year-to-date. Earlier this month, the holding company for Pinnacle Bank announced the completion of its previously-announced merger with Magna Bank, which will assist the company’s geographic expansion to Tennessee’s four urban markets. The freshly-combined company has total assets of $8.2 billion as of June 30, with 42 offices in 13 Tennessee counties. Magna is set to operate as a separate division of Pinnacle Bank until November, when the two companies will combine their operations. From the massive pool of hedge funds and other investors monitored by Insider Monkey, Jim Simons’ Renaissance Technologies represents the largest equity holder of Pinnacle Financial Partners (NASDAQ:PNFP), with 545,300 shares.
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