All major U.S. indexes closed more than 1% in the green on Friday, rebounding from an initial drop of over 1.5%. The Dow Jones Industrial Average gained 200.36 points or 1.23%, marking the biggest intraday upside reversal over the past four years. The disappointing jobs report released by the Labor Department on Friday adds to the growing worries about a slowing global economy which is compounded by the puzzlement around the Fed’s decision to not raise interest rates. Most importantly, the soon-to-be kicked off third-quarter earnings season will surely shed some light on the direction of U.S equities for the remainder of the year. In the meantime, some corporate insiders have been offloading their holdings lately, which might be pointing to the fact that their companies will most likely have a troublesome fourth quarter in terms of stock performance. In this article, we will investigate the insider selling activity at these three companies: Liquidity Services Inc. (NASDAQ:LQDT), Ambarella Inc. (NASDAQ:AMBA), and Regency Centers Corp. (NYSE:REG). We will attempt to find out whether the insider selling activity at these companies has been triggered by any firm-specific issues or is due to reasons unrelated to expected stock performance.
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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 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 118% over the ensuing 36 months, outperforming the S&P 500 Index by 60 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.
Coming back to our list of three companies with high insider selling activity, Liquidity Services Inc. (NASDAQ:LQDT) had five different insiders sell shares this week. William P. Angrick III reported selling his entire stake of 24,561 directly-held shares on Friday at a price of $7.23 per share, remaining with a few million shares held indirectly through several trust funds. Chief Information Officer Segundo L. Casusol unloaded 15,251 shares at the same price, trimming his stake to 20,710 shares. James M. Rallo, who serves as President of the Retail Supply Chain Group, sold off his 19,720 share-stake for $7.23 each. However, he still holds indirect ownership of a few thousand shares, along with an additional amount of employee stock options and grants. Liquidity Services, which operates online auction marketplaces for business surplus, was recently named “Asset Disposal Firm of the Year” by ACQ Magazine’s Global Awards 2015. However, the company’s stock performance has been disappointing over the past few years, with its shares declining by 7% year-to-date and more than 76% over the past two-year period. Jim Simons’ Renaissance Technologies represents the largest equity holder of Liquidity Services Inc. (NASDAQ:LQDT) among the hedge funds tracked by Insider Monkey, with nearly 482,000 shares.
