In our analysis of the wealth of insider trading activity that took place on Monday, we zeroed in on three particular companies that displayed a high monetary value of insider sales by company big wigs, who elected to cut ties with portions of their stock rather than wait for shares to rise. While insider selling should not be considered bearish activity per se, as it can occur for a variety of reasons that have nothing to do with an insider having bearish sentiment towards the stock, it can nonetheless be telling in some instances. Let’s take a look at these three cases, which involve Adobe Systems Incorporated (NASDAQ:ADBE), Blue Buffalo Pet Products Inc (NASDAQ:BUFF), and Intuitive Surgical, Inc. (NASDAQ:ISRG), to see what we can determine about these stocks and the insider selling activity that took place in regards to their shares. We’ll also analyze hedge fund sentiment to determine the direction the smart money has been leaning in with regards to these stocks.
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Most investors don’t understand hedge funds and indicators that are based on hedge funds’ or insiders’ activities. They ignore hedge funds in particular because of their recent poor performance in the bull market. Our research indicates that hedge funds underperformed because they aren’t 100% long. Hedge fund’s fees are also very large compared to the returns generated and they reduce the net returns experienced by investors. We uncovered that hedge funds’ long positions actually outperformed the market. For instance the 15 most popular small-cap stocks among funds has beaten the S&P 500 Index by more than 66 percentage points since the end of August 2012. These stocks returned a cumulative of 123.1% vs. 56.6% gain for the S&P 500 Index (read the details). That’s why we believe investors should pay attention to what hedge funds are buying (rather than what their net returns are)
Let’s start with Adobe Systems Incorporated (NASDAQ:ADBE), the largest and most well-known of the three companies. Director Robert Sedgewick sold 25,000 shares of the company at a price of $80.27 per share on Monday, with the total transaction adding just over $2.0 million to Sedgewick’s bank account. Sedgewick isn’t the only man with close ties to the company who’s been selling shares of late; activist investor Jeffrey Ubben has slowly been divesting himself of his own considerable holdings in the company, with his at-one-time 31.3 million-share stake now being reduced to just 14.01 million shares following his latest sales this month. Shares are up only slightly over the past five months, though they’re still up by nearly 11% year-to-date. With the company’s transition to a premium subscription model now complete and the benefits from that move having been realized over the past three years of trading, it appears there may be little room left to the upside for the stock in the near term. The smart money seems to think so, as they left Adobe Systems Incorporated (NASDAQ:ADBE)’s stock in droves during the first quarter, with nine less fund managers holding positions in the company on March 31 at 37 as did on December 31. Their collective holdings also dropped by about 10%, despite shares rising slightly during the quarter, showing that they cashed out some of their positions in the stock. Ubben remained the largest shareholder of the company in our database following the end of the first quarter, with billionaire Stephen Mandel‘s Lone Pine Capital holding down second with 12.05 million shares.
It didn’t take long for insiders at Blue Buffalo Pet Products Inc (NASDAQ:BUFF) to cash in on their personal holdings following the IPO of their company last week: CEO Kurt Schmidt and EVP, CFO and Treasurer Michael Nathanson both sold off the entirety of their holdings in the company on Monday, Schmidt selling 239,094 shares at $20.00 each and Nathanson selling 63,758 shares, also at $20 each. Meanwhile, President and COO William Bishop Jr. also sold 548,536 shares at the same $20 level. All told, the sales racked up over $17.02 million for the executives of the pet food supplier. Shares fell by 2% under the weight of the insider selling on Monday, and are now down by 4% since the July 22 IPO. There are no known funds tracked by Insider Monkey with positions in the company at this point. It will be interesting to see the hedge fund interest in Blue Buffalo Pet Products Inc (NASDAQ:BUFF), which has been beset by legal problems due to its alleged false advertising concerning claims it made that its pet foods contain no animal by-products, which independent testing has conclusively proven otherwise. Fellow pet food producer Purina filed a lawsuit against the company last year, which is still ongoing.
Lastly is Intuitive Surgical, Inc. (NASDAQ:ISRG), which had three officers make sales on Monday. President and CEO Gary Guthart sold 17,255 shares at a hefty $541.98 each, while Senior Advisor of Commercial Ops Jerome McNamara sold 5,000 shares at $541.75 each, and SVP, General Counsel and COO Mark Meltzer sold 4,750 shares in three transactions. The sales by the three men amounted to more than $14.63 million worth of shares. The selling spree comes just days after shares shot up by nearly 9% last Wednesday following the company’s latest earnings results, which were released in the after-hours the night before. The company topped revenue and earnings estimates analysts had for it, while selling 118 of its Da Vinci surgical robot systems during the second quarter, a 22.9% increase year-over-year. The results appear to have caught hedge funds off guard, as those tracked by Insider Monkey were selling out of the stock in the first quarter of the year, with 33 funds holding $1.11 billion in the company’s stock on March 31, down from 42 funds and $1.24 billion respectively, as of December 31. Although it should be added that the smart money was not necessarily wrong, as shares did decline by about 4% during the second quarter, and we don’t yet know their sentiment heading into the third, during which shares have now greatly rebounded. Samuel Isaly‘s Orbimed Advisors healthcare fund was the largest shareholder of Intuitive Surgical, Inc. (NASDAQ:ISRG) among those funds as of March 31, holding 409,700 shares.
Disclosure: None
