What Has Insiders Of These Companies Unloading Their Shares?

Statistics reveal that insider buying activity fell substantially during the last week, along with a small decline in insider selling. Most importantly, the ratio of insider selling over insider buying increased significantly during that week, which points to the fact that corporate insiders are predominantly bearish on the market. But why would they turn bearish amid an apparent stock market recovery? It might be the case that the recent short-term rally is the beginning of a new wave of sell-offs. And there are numerous reasons to be bearish indeed, including weak data from China, a weaker-than-expected jobs report, and negative S&P 500 earnings estimates. This article will examine the insider selling activity at Atlas Financial Holdings Inc. (NASDAQ:AFH), G-III Apparel Group Ltd. (NASDAQ:GIII), and Carnival plc (ADR) (NYSE:CUK). It is true that insider buying activity is more telling than insider selling activity, but one should not overlook the fact that insiders have been offloading their holdings lately. Hence, the recent insider selling activity might actually provide valuable insight about different companies’ future prospects.

Rawpixel/Shutterstock.com

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 more than 102% over the ensuing three years, outperforming the S&P 500 Index by 53 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.

Getting back to the underlying intent of this article, Atlas Financial Holdings Inc. (NASDAQ:AFH)’s Director Jordan M. Kupinsky unloaded 37,666 shares on Tuesday at a price of $19 per share. After yesterday’s sale, the Director currently owns 21,634 shares. The company’s primary business is commercial automobile insurance, targeting the niche market of “light” commercial automobiles that includes taxi cabs, non-emergency paratransit, limousine, and business vehicles. Atlas Financial Holdings has been gaining market share in this niche market over the past several months, which was reflected in its financial results for the second quarter. The company posted earnings per share of $0.31 compared to $0.23 reported a year ago. In a recent CNBC interview, Wally Walker of Hana Road Capital asserted that the stock was a good buying opportunity. In fact, the shares of Atlas have advanced by 16% since the beginning of the year, thanks to gaining over 18% since the beginning of September. Brian C. Freckmann’s Lyon Street Capital represents the largest shareholder of Atlas Financial Holdings Inc. (NASDAQ:AFH) within our extensive database, holding slightly more than 263,000 shares.

Let’s move on to G-III Apparel Group Ltd. (NASDAQ:GIII), a designer and manufacturer of a range of apparel products that has seen strong insider selling activity lately. Sammy Aaron, who has been Vice President and Director since G-III acquired the Marvin Richards business back in July 2005, reported selling 27,159 shares at prices ranging from $64.75-to-$65.73. The executive currently holds an ownership stake of 468,930 shares. Furthermore, Chairman and Chief Executive Officer Morris Goldfarb sold 90,499 shares at a weighted average price of $65.06, on top of an additional 59,815 shares that were sold to satisfy tax obligations in relation to the vesting of restricted stock units. The executive currently owns approximately 3.57 million shares. Chief Operating Officer Wayne S. Miller also sold 11,191 shares at a weighted average sale price of $64.79 and an additional 23,809 shares to satisfy tax obligations, trimming his stake to 221,698 shares. The shares of G-III have advanced by more than 26% since the beginning of the year, partly thanks to the company’s robust wholesale and retail performance. Jacob Gottlieb’s Visium Asset Management added a 208,000-share position in G-III Apparel Group Ltd. (NASDAQ:GIII) during the second quarter.

Last but not least, we will look into the insider selling activity at Carnival plc (ADR) (NYSE:CUK). Michael Olaf Thamm, who has been the Chief Executive Officer of Costa Crociere S.P.A. of Carnival since July 2007, reported selling 6,943 shares at an average price of roughly $50.64 per share. It is also worth mentioning that the executive received 427 shares, representing the settlement of dividend equivalents accumulated during the restricted period from his restricted stock units that had vested. Following these transactions, the executive owns 45,484 shares. The shares of the cruise company are 14% in the green year-to-date; thus, there is no surprise why the executive decided to cash out a portion of his stake given the current stock market uncertainty. Earlier this week, Carnival announced its intentions to deploy two additional cruise brands in China in 2017, in an attempt to expand its operations in the country to meet the increasing demand from travelers there. Israel Englander’s Millennium Management reported owning 88,502 shares of Carnival plc (ADR) (NYSE:CUK) in its 13F filing for the June quarter.

Disclosure: None