I recently discussed how company insider buying is significant, but that investors need to be able to differentiate between meaningful buys and lesser ones. Sometimes, buying can appear to be meaningful, but other transactions might counteract it … or at least muddy the waters enough to make investment decisions difficult.
Such is the case at Tiffany & Co. (NYSE:TIF), where large corporate insider purchases have occurred simultaneously against a wave of insider sales.
During the month of April, six different insiders sold large numbers of TIF shares. Had these been automatic, routine sales made regardless of price or company performance, they would be less significant. However, most of these were direct sales made on the open market. There are some additional option exercises, which could either mean the insider thought it best to take profits, or the options could have been expiring soon.
Here is the list of recent TIF insider sales:
I have mentioned before that when one insider sells stock, it usually is insignificant because it could be for a myriad of reasons other than the company’s performance. However, when several insiders are selling at the same time, it often indicates a general feeling among them that the stock price is either fully valued or about to decline. So it would be logical, given the heavy insider selling, to assume that Tiffany’s stock price has about run its course.
But then, what are we to make of a number of heavy share purchases recently made by Qatar Investment Authority, the sovereign wealth fund of the state of Qatar, one of the richest areas of the world? Take a look at its recent buying spree of Tiffany stock:
While Qatar Investment Authority was buying throughout March and April at much lower prices, on April 29 — 11 days after the selling — it purchased roughly $20 million worth at a price some $3 higher. It must have known about the recent selling, but obviously that wasn’t a deterrent. Qatar is gradually building a large position of company ownership of TIF via its shares, possibly for reasons completely unrelated to the current stock price.
Click to Enlarge As for TIF stock, the accompanying chart shows the run-up in price from $56 to $75 over the past six months — a 34% increase. It is not uncommon for company insiders to begin to take some profits following this kind of price appreciation. What is unusual is for insiders to make a large purchase at such a juncture.
Given the conflicting insider transactions, what should an investor do?
The most logical answer is if you already own TIF and have a nice profit, consider tightening your stops, or buying an intermediate-length PUT to protect against a decline. After a significant run-up in price, if the insiders are paring down their positions, perhaps you should as well.
But if you do not already own TIF, the simplest answer is to do nothing. Despite the purchases by Qatar, I would not be a buyer, nor would I be shorting or buying puts against it.
When the situation is murky and contradictory, the most prudent thing for investors to do is to look for other stocks whose current outlook is clearer. There are too many other stocks out there to warrant risking your hard-earned capital on TIF after a 35% run-up and amid a slew of confusing insider transactions.
As of this writing, Ethan Roberts did not hold a position in any of the aforementioned securities. His special report How to Profit From Insider Buying in 2013 — which includes 5 stock picks with significant insider buying activity right now, as well as tips on how to use insider trading to your advantage — can be purchased here.