It’s common knowledge that executives, directors and other corporate insiders know their companies inside out, so shadowing insiders might represent a great tip for beating the broader market. That’s why piggybacking on insider transactions has proven to be profitable. Therefore, we keep a close eye on insider sales and acquisitions and have noticed that insiders have been recently unloading shares of Public Storage (NYSE:PSA), Google Inc. (NASDAQ:GOOG), and Splunk Inc. (NASDAQ:SPLK). Let’s take a closer look at each of these companies and insider transactions involving them in the last couple of days.
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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 imitating 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 123% over the ensuing 34 months, outperforming the S&P 500 Index by nearly 66 percentage points (read the details here).
Let’s move on to the first company we’ll be discussing in this article. Public Storage (NYSE:PSA) witnessed noteworthy insider selling activity over the last two weeks. Ronald L. Havner, who has been the Chairman, Chief Executive Officer and President of Public Storage since 2011, completed three sales since the beginning of the current week. In aggregate, Ronald Havner reported selling 83,000 shares of Public Storage at prices between $207.77 to $209.50. It’s worth mentioning that he acquired the shares through the exercise of stock options, so his holding remained unchanged at 64,090 shares. The company saw three sales from three different corporate insiders on August 7 as well, together selling 72,500 shares.
These recent sell-offs might not come as a surprise considering the fact that the shares of Public Storage are currently trading at an all-time high. The stock has gained nearly 14% since the beginning of the current year, partly thanks to the recently-published financial results for the second quarter of 2015. Public Storage, a REIT that primarily acquires, develops, owns and operates self-storage facilities, posted a net income of $263.9 million or $1.52 per diluted share for the quarter, compared to $218.4 million or $1.26 reported a year ago. At the same time, the company’s revenues for the Same Store Facilities came to $592.63 million, up $31.0 million from the figure reported a year ago. Jeffrey Furber’s AEW Capital Management is among the bullish hedge funds on Public Storage (NYSE:PSA) within our database, holding a stake of 1.45 million shares as of June 30.
