What Has These Companies’ Insiders Cash Out Ahead of 2016?

The insider trading activity was very torpid in the past two holiday-shortened trading weeks, but several companies still witnessed heavy insider selling. As a general rule, insider selling points to grim prospects in the upcoming future, but this type of activity should be closely examined in order to avoid the misinterpretation of the information it carries. The likelihood of wrongly interpreting insider selling is extremely high, as insiders can sell shares for numerous reasons that might not be related to their companies’ current developments or future prospects. Despite that, certain insider sales may still accurately predict that some companies do not have such a bright future as most market participants might have anticipated. At the end of the day, corporate insiders are the ones who have more up-to-date and in-depth knowledge about their companies’ current challenges and future prospects. For that reason, this article will discuss the recent insider selling reported at three companies and examine the recent performance of the companies in question.

Prior to discussing the insider trading activity, let’s make you familiar with what Insider Monkey does. 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 the details here). Since the official launch of our small-cap strategy in August 2012, it has performed just as predicted, returning over 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.

Celgene Corporation (NASDAQ:CELG) is among the companies that witnessed heavy insider selling in the past two weeks. Director Ernest Mario unloaded 40,000 shares last Monday at prices that ranged from $118.56-to-$120.16 per share, cutting his overall holding to 82,449 shares. Director Michael D. Casey reported selling 20,000 shares on December 23 at a weighted average price of $122.11, all of which were held through a family trust fund. After the recent sale, the trust fund holds an ownership stake of 125,485 shares. The shares of this integrated global biopharmaceutical company are up slightly more than 5% in 2015 and most financial hubs have great expectations about the company’s future performance. In early November, UBS reiterated its ‘Buy’ rating on Celgene Corporation (NASDAQ:CELG), but lowered its price target to $145 from $156. Similarly, Cantor Fitzgerald reiterated its ‘Buy’ rating on the stock in mid-December, citing strong fundamentals and convincing pipeline. The company’s revenue for the nine-month period ended September 30 totaled $6.69 billion, up by $1.11 billion year-on-year. Celgene’s oral immunomodulatory drug REVLIMID, POMALYST/IMNOVID, and anti-inflammatory drug OTEZLA stand behind the company’s top-line growth. Meanwhile, analysts anticipate full-year earnings per share growth of nearly 19% next year to $5.71 per share. Samuel Isaly’s Orbimed Advisors cut its stake in Celgene Corporation (NASDAQ:CELG) by 7% during the third quarter to 3.59 million shares.

The second page of this insider trading article discusses the insider sales reported at Aetna Inc. (NYSE:AET) and Nuance Communications Inc. (NASDAQ:NUAN). 

Aetna Inc. (NYSE:AET) also registered a high volume of insider selling in recent weeks. Margaret M. McCarthy, Executive Vice President of Operations and Technology since 2010, offloaded 18,373 shares on December 23 at a weighted average price of $109.97 and currently owns 64,515 shares. The shares of this diversified health care benefits company are up almost 22% for the year, which could somewhat justify the executive’s decision to cash out. In early July, Aetna and Humana Inc. (NYSE:HUM) sealed a merger agreement under which Humana was acquired for roughly $37 billion. This deal is anticipated to close in the second half of 2016, which will create one of the largest health insurance companies in the United States. Aetna appears to be an attractive investment opportunity at the moment, considering several valuation metrics. The stock trades at a trailing price-to-earnings ratio of 16.58, which is below the average of 22.95 for the companies included in the S&P 500. In the meantime, analysts anticipate full-year EPS growth of roughly 7% next year, which yields a forward P/E ratio of 13.39 (the forward P/E for the S&P 500 Index equals 17.44). The number of hedge fund investors from our database with positions in the company declined to 70 from 80 during the September quarter. Daniel S. Och’s OZ Management acquired a 3.75 million-share stake in Aetna Inc. (NYSE:AET) during the third quarter.

Nuance Communications Inc. (NASDAQ:NUAN) saw an insider selling big in the past two weeks. Chief Executive Officer Paul A. Ricci sold 150,000 shares at prices between $20.15 and $20.35, trimming his total holding to 937,173 shares. The provider of voice recognition solutions and natural languages understanding technologies has seen its shares advance by over 40% in 2015, so it is not wonder why the CEO has decided to cash out. The company posted total revenues of $1.93 billion for fiscal 2015, up from $1.92 billion reported for fiscal 2014. This increase was mainly achieved due to higher professional services and hosting revenue. Analysts anticipate earnings per share of $1.56 for the next fiscal year, which results in a forward P/E ratio of 12.79. Although there is a growing number of companies that develop solutions and technologies similar to the ones offered by Nuance Communications, there is no company that competes with all Nuance’s solutions and technologies. Even so, some of its competitors, including Microsoft, Google, and Adobe, in specific target markets have substantially higher financial and technical resources than Nuance, which could adversely impact its ability to respond to new technologies and changing customer trends. A total of 30 hedge funds tracked by Insider Monkey were invested in the company at the end of the third quarter, as compared with 25 reported at the end of the prior quarter. Billionaire Carl Icahn of Icahn Capital LP owns 60.78 million shares in Nuance Communications Inc. (NASDAQ:NUAN) as of September 30.

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