All eyes are on the Federal Reserve for the next two days, as a policy meeting that might result in the first interest rate hike in almost a decade kicks off. Jim Rogers, the founder of Rogers Holdings and co-founder of George Soros’ Quantum Fund, believes that the Fed will raise interest rates “maybe even this week and certainly this year”. He also suggests that following a rake hike this week or in the upcoming monthly policy meetings, “markets are going to go down”. And there are many others who believe that a potential rate increase would put a halt on the growth of the U.S economy or at least put some downward pressure on the equity markets. Some insiders at large publicly-traded companies began to sell off a large amount of shares, so one may wonder what stands behind their decisions. In the following article we will be examining the insider selling activity at VCA Inc (NASDAQ:WOOF), Steel Excel Inc (NASDAQ:SXCL), and Cimarex Energy Co (NYSE:XEC). Insider selling might suggest that executives know that their stock is likely to underperform the market, but that should not be taken for granted. There might be cases when insiders sell for personal reasons that are not related to their companies’ prospects at all, so insider trading activity should always be closely examined.
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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.
To start with, let’s take a look at the insider selling activity at VCA Inc (NASDAQ:WOOF), a leading animal healthcare company in the United States. Josh Drake, who has been President of Antech Diagnostics at VCA since February 2008, reported selling 12,561 shares at a weighted average price of $56.49 per share on Tuesday, trimming his stake to 46,575 shares. However, Drake exercised 8,584 stock options on the same day, so the actual stock ownership of the executive only decreased by 3,977 shares. Moving back to the company itself, the shares of VCA have performed quite well so far this year, delivering a year-to-date return of almost 16%. It’s worth noting that several VCA hospitals in Northern California are offering free boarding assistance for small animals to families impacted by the Valley Fire in Lake County. This gesture suggests that the company is not merely focusing on its financial performance, which most investors would expect, but also concentrates on its underlying aspirations and ideals. Larry Robbins’ Glenview Capital reported owning 12.80 million shares of VCA Inc (NASDAQ:WOOF) in its 13F filing for the June quarter.
Jack L. Howard, Principal Executive Officer of Steel Excel Inc (NASDAQ:SXCL), unloaded 5,000 shares for $22.19 each on Tuesday. Hence, the executive currently holds a 67,276 share-stake valued at nearly $1.46 million. Let’s not forget to mention that Jack Howard also sold 10,670 shares on Friday of last week at a price of $22.57 per share. The shares of Steel Excel Inc (NASDAQ:SXCL) have lost over 14% year-to-date, but the steady downtrend that has been continuing since the beginning of July 2014 seems to be over. The company that operates through its Energy and Sports business segments, reported net revenues of $35.6 million for the second quarter of 2015, compared with $51.9 million registered a year ago. The company’s net loss widened year-over-year to $10.5 million from $7.7 million. The continuing weakness in the oil industry has impacted the results of operations of the company’s Energy segment, which is seemingly reflected in its stock performance. No investors in our database holds shares of Steel Excel as of June 30.
Finally, Cimarex Energy Co (NYSE:XEC) had two different insiders sell stock on Tuesday. John Lambuth, who was named Vice President of Exploration for Cimarex back in 2012, sold 10,000 shares at a price of $104.52 per share, reducing his stake to 85,471 shares. In the meantime, the company’s Executive Vice President and Chief Operating Officer, Joseph R. Albi, offloaded 1,110 shares at $104.00 apiece. After the recent sale, the executive owns 38,093 shares. The independent oil and gas exploration and production company has had a good year compared to its industry peers, as its shares are currently trading at the same level as they were trading at during the first days of 2015. Just recently, the company’s Board of Directors announced its regular quarterly cash dividend of $0.16 per share, which is payable on December 1, 2015. Therefore, it appears that the company has been doing quite well amid a struggling oil industry. It is hard to link the executives’ recent sales to specific developments at Cimarex Energy, but the oil industry does not show any signs of recovery yet, keeping in mind that a new stream of oil from Iran might impact the price of oil. Israel Englander’s Millennium Management acquired a 603,762 share-stake in Cimarex Energy Co (NYSE:XEC) during the second quarter, making it one of the largest equity holders in the Denver-based company within our database.
Disclosure: None
