What Stands Behind Insiders’ Bearishness at These Companies?

The wild third quarter is already behind, so market participants should get ready for the final quarter of this year. Many tend to believe that the worst is behind us, while others reckon that there is more trouble ahead for the U.S. equities. Carl Icahn, one of the most feared corporate raiders, warns that markets seem to be overvalued by saying that “this market is in very dangerous territory”. He also pointed out in a recently-released video on his website that most companies’ earnings are inflated thanks to the low interest rate environment pursued by the Fed (read more details here). It is highly unlikely that the market will experience a downfall comparable to the one that occurred back in 2008, but Icahn’s worries should not be overlooked. In the meantime, some corporate insiders have been offloading their positions lately, which could serve as another bearish sign on the broader market or on some company’s stock in particular. The Insider Monkey team spotted three companies that had an unusual volume of insider selling activity recently, so we will try to find the reasoning behind insiders’ moves. Marriott International Inc. (NASDAQ:MAR), NetApp Inc. (NASDAQ:NTAP), and Riverview Bancorp Inc. (NASDAQ:RVSB) are the three companies we are referring to. It is also worth pointing out that we consider only the impromptu insider trading activity by ignoring the sales conducted via trading plans.

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 118% over the ensuing 36 months, outperforming the S&P 500 Index by nearly 61 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.

To begin with, global lodging company Marriott International Inc. (NASDAQ:MAR) saw one of its executives sell stock earlier this week. David J. Grissen, who has been acting as Group President of Marriott since February 2014, sold 3,000 shares at a weighted average price of $66.09, trimming his stake to 53,450 shares. Earlier this month, Chairman J.W. Marriott Jr. reported a sale of 34,550 shares at a price of $72.45 per unit, all of which were held by a trust fund. The chairman holds directly 240,024 shares, in addition to several millions of shares held indirectly through multiple trust funds and other parties. The shares of Marriott International have been riding a downtrend for almost the whole year, losing more than 12% year-to-date. La Quinta Holdings Inc. (NYSE:LQ), one of Marriott’s competitors, recently reduced its revenue per available room growth guidance to the range of 3.5% to 4.5% from 4.5% – 5.5%, citing sluggish hotel demand in August and September. Thus, it might be the case that Marriott has been facing similar challenges over the past few months. Malcolm Fairbarin’s Ascend Capital acquired a 1.27 million-share stake in Marriott International Inc. (NASDAQ:MAR) during the second quarter.

Let’s now switch our focus on NetApp Inc. (NASDAQ:NTAP), a provider of software, systems, and services that manage and store computer data. Matthew K. Fawcett, Senior Vice President, General Counsel and Secretary, reported selling his entire stake of 6,633 shares at a weighted average price of $29.49. NetApp’s stock has been on a decline for the entire year and it seems that they are looking for a bottom at the moment. Specifically, the stock has lost over 28% since the beginning of the year, amid weak financial results delivered for the last quarter. NetApp reported net revenues of $1.34 billion in the first quarter of 2016, which were down by 10% year-over-year. This decline was mainly attributable to the decrease in the company’s product revenues, which were in turn offset by higher software maintenance revenues and other services revenues. Cliff Asness’ AQR Capital Management disclosed a 3.19 million-share holding in NetApp Inc. (NASDAQ:NTAP) in the last round of 13F filings.

Lastly, let’s take a look at the insider selling activity at Riverview Bancorp Inc. (NASDAQ:RVSB). Director Gary R. Douglass unloaded 16,056 shares for $4.40 each earlier this week, reducing his stake to 33,859 shares. The director sold an additional 850 shares last week at $4.40 apiece. A little more than a month ago, James M. Chadwick, Portfolio Manager of investment firm Ancora Advisors LLC, was appointed to Riverview Bancorp’s Board of Directors. The Cleveland-based Ancora appears to be working on unlocking shareholder value at the holding company of Riverview Community Bank. The stock are 6% in the green year-to-date, thanks to this week’s surge of nearly 11%. The company’s business environment and market areas have seen great improvement over the past few years, which have definitely been assisted by the strengthening U.S. economy and improving labor market. Furthermore, the bank’s management has been carrying out cost-cutting efforts and will continue to find cost saving opportunities within its entire system of operations. Matthew Lindenbaum’s Basswood Capital is the largest shareholder of Riverview Bancorp Inc. (NASDAQ:RVSB) among the hedge funds tracked by Insider Monkey with 1.34 million shares.

Disclosure: None