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.
Let’s now take a look at the insider selling activity at Google Inc. (NASDAQ:GOOG), the tech giant that surely does not need an introduction. David C. Drummond, who currently serves as Senior Vice President, Corporate Development and Chief Legal Officer at Google, sold 11,318 shares on August 12, after exercising 5,000 stock options to buy shares of Google. To be more detailed, David Drummond exercised 2,500 stock options to purchase Class A common stock and 2,500 stock options to purchase Class C common stock, and then sold all of them including an additional 3,159 Class A shares and 3,159 Class C shares. Following the transactions, Drummond currently owns only 18,584 Class C shares. However, this move should not raise any red flags, as David Drummond will leave Google to become Senior Vice President of Corporate Development at Alphabet, Google’s new parent company.
Google has recently announced an overhaul of its corporate structure. As a result, the company that used to be called Google will now become a new holding company called Alphabet, while the current shareholders of Google will get one Alphabet share for each Google share previously-owned. In the meantime, Harris Associates is among the largest shareholders of Google Inc. (NASDAQ:GOOG), owning 2.35 million Class A shares and 762,262 Class C shares as of June 30.
Last but not least, let’s take a look at Splunk Inc. (NASDAQ:SPLK), whose insiders also have unloaded a significant number of shares in the last couple of days. Godfrey R. Sullivan, the President, Chief Executive Officer and Chairman of Splunk, sold 83,348 shares so far this week through multiple transactions, which included 16,668 shares on August 12 alone, remaining with 491,940 shares. David F. Conte, who currently serves as Senior Vice President and Chief Financial Officer at Splunk, reported selling 25,700 shares during this week. Hence, David Conte now owns 112,130 shares of the company. At the same time, another Senior Vice President of the company, Guido R. Schroeder, sold 10,000 shares through three transactions on August 10 and continues to own 115,939 shares.
The shares of Splunk have gained 15% year-to-date, but analysts believe the stock is overvalued. Splunk has experienced heavy sell-offs after the last two quarterly financial releases despite beating estimates. It is believed that a small miss on earnings in the next quarter could impact the stock significantly. Therefore, we see the aforementioned insider selling activity as a bearish sign for the stock. Donald Chiboucis’ Columbus Circle Investors is one of the bullish hedge fund on Splunk Inc. (NASDAQ:SPLK) within our database, owning 1.41 million shares as of June 30.
Disclosure: None
