What Has Propelled Insiders to Cash Out of These Strong-Performing Stocks?

All major U.S. indexes declined sharply on Friday, delivering the worst trading week since the major sell-off in August. Even so, the volume of insider buying increased significantly last week relative to the previous one, which may be taken as a bullish sign amid so much uncertainty. At the same time, last week’s insider selling activity more than doubled compared to the prior week. In fact, insider selling has been more prominent than insider buying over the past several months, which could make many market participants believe that insiders have a bearish view of the market. The Insider Monkey team pinpointed three companies that had a high volume of insider selling last week, so this article will lay out recent developments at those companies which might have propelled insiders to discard their holdings.

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Prior to discussing the insider trading activity, let’s make you familiar with what Insider Monkey does besides providing high-quality articles. At Insider Monkey, we track hedge funds’ moves in order to identify actionable patterns and profit from them. Our research has shown that hedge funds’ large-cap stock picks historically underperformed the S&P 500 Total Return Index by an average of seven basis points per month between 1999 and 2012. On the other hand, the 15 most popular small-cap stocks among hedge funds outperformed the S&P 500 Index by an average of 95 basis points per month (read more details here). Since the official launch of our small-cap strategy in August 2012, it has performed just as predicted, returning 102% and beating the market by more than 53 percentage points. We believe the data is clear: investors will be better off by focusing on small-cap stocks utilizing hedge fund expertise (while avoiding their high fees at the same time) rather than large-cap stocks.

Let’s start off by looking into the insider selling activity at independent natural gas and oil company PDC Energy Inc. (NASDAQ:PDCE). Director James M. Trimble unloaded 33,582 shares last Tuesday at a weighted average sale price of $60.70, cutting his overall holdings to 168,031 shares. The shares of the company are 42% in the green year-to-date, which is somewhat surprising considering the challenging environment in the energy industry. The company’s third quarter production grew by 84% year-over-year to 4.3 million barrels of oil equivalent (MMBoe), which marks the strongest quarter-over-quarter production growth at the company ever. PDC Energy employs numerous derivative instruments to help tackle the volatile crude and natural gas prices, which assisted the company in keeping its operations pumping at full steam. The company generated net cash from operating activities of $136.5 million during the third quarter, which was up by 94% year-over-year and exceeded its capital expenditures of $130.9 million. The number of smart money investors that we track which had positions in the energy company declined to 27 from 29 during the third quarter, with them accumulating 13.60% of the company’s outstanding common stock. Jorge Paulo Lemann’s 3G Capital acquired a 300,000-share stake in PDC Energy Inc. (NASDAQ:PDCE) during the June quarter.

We can now head to the next page of the article, which discloses the insider selling activity at ResMed Inc. (NYSE:RMD) and NVIDIA Corporation (NASDAQ:NVDA).

ResMed Inc. (NYSE:RMD) saw one of its executives unload a sizable block of shares last week. Donald Darkin, who has served as President of Innovation and Operations since December 2014, sold 25,442 shares on Thursday at a price of $57.72 per share. The executive also disposed of 592 shares a day earlier for tax withholding obligations. After the recent transactions, Donald Darkin holds an ownership stake of 13,684 shares. The shares of the developer of medical equipment for treating and diagnosing sleep-disordered breathing and other respiratory disorders are up by slightly over 2% for the year. Just recently, ResMed reported third quarter net revenue of $411.6 million, which was up by 8% year-over-year, and up by 15% on a constant currency basis. However, its net income came to $80.4 million, compared to $83.3 million reported last year. It is also worth pointing out that the stock seems to be fairly valued at the moment if considering its trailing P/E ratio of 23.40, which compares to 22.70 for the S&P 500. ResMed received more attention from the hedge funds tracked by Insider Monkey during the second quarter, as the number of money managers with positions in the company climbed to 18 from 13 quarter-over-quarter. Jim Simons’ Renaissance Technologies added a 1.36 million-share position in ResMed Inc. (NYSE:RMD) to its portfolio during the third quarter.

Finally, we will check out the insider trading activity at visual computing company NVIDIA Corporation (NASDAQ:NVDA). Director A. Brooke Seawell reported selling 40,000 shares last Monday at a weighted average price of $31.12, all of which were held by trust fund A. Brooke Seawell TTEE, Rosemary Warner Seawell TTEE, Rosemary & A. Brooke Seawell Revocable Trust. After the recent sale, the trust fund owns 160,000 shares. The shares of the graphics chip company are 48% in the green year-to-date, and are currently trading at a trailing P/E ratio of 27.85. Even so, most investors should ignore the P/E ratio of the company given its promising future potential. NVIDIA develops graphics processors that generate realistic graphics for PC games. The company’s business has been steadily growing despite its high reliance on the struggling PC market. Even so, NVIDIA’s flourishing source of growth may come from the automotive industry, thanks to its Tegra mobile system-on-a-chip products. The number of hedge funds with positions in the visual computing company declined to 30 from 34 during the second quarter. David Harding’s Winton Capital Management was bullish on NVIDIA Corporation (NASDAQ:NVDA) during the September quarter, ending the three-month period with 3.36 million shares.

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