2 More Insider Selling Warnings

by Ethan Roberts | May 7, 2012 7:30 am

Last week, with the crash and burn of Green Mountain Coffee Roasters (NASDAQ:GMCR[1]), investors witnessed how advance knowledge of insider transactions[2] in a stock can be a tip-off for avoiding a large loss, or even provide an opportunity to prosper by trading in the same direction as the insiders.

Insider transactions are made public to level the playing field for all investors — and to prevent insiders from cashing in on upcoming major company announcements. Many of the largest financial websites, such as Yahoo, carry this information routinely.

Given the GMCR debacle, it pays to keep on the lookout for other such potential red flags. So, let’s look at two well known companies in which insiders have recently been selling in abundance, just like GMCR insiders were five weeks ago. Unfortunately for those long these stocks, these two companies could find themselves suffering a similar fate, perhaps not to the same extent or as dramatically as Green Mountain, but in the same direction.

Selling Goes HOG Wild

The first stock is Harley-Davidson (NYSE:HOG[3]), the Milwaukee-based company that’s the world’s leading manufacturer of heavyweight motorcycles and parts. As you can see from the table below, HOG has done very well over the last six months, “driving” its stock up from around $34 to yesterday’s close of $53.01.

But are the insiders content to just let their profits “ride” for awhile longer? In a warning to HOG investors, the answer is no. Here’s a closer look at the recent insider selling.

On May 1,2012, four different company insiders sold $819,552 of HOG stock at prices ranging from $52.30 to $53.72. The sales were:

Insider, Title Price Sold No. of Shares Sold Total Value
PAUL JONES, Officer $52.30 10,435 $545,750
SARA LEVINSON, Director $53.72 1,800 $96,696
BARRY ALLEN, Director $53.25 1,800 $94,320
MARK KORNETZKE, Other $53.33 1,582 $82,786
Totals 15,617 $819,552

But this was chump change, compared to just a few days earlier, when five other company insiders sold approximately $2.6 million worth of HOG:

Insider, Title Price Sold No. of Shares Total Value
TONIT CALAWAY, Officer $52.84 17,555 $927,606
JOANNE BISCHMANN, Officer $53.02 16,086 $852,879
JOHN BAKER, Officer $52.82 7,555 $927,606
JOHN OLIN, Officer $53.18 5,000 $265,900
MATTHEW LEVATICH, Officer $52.84 3,314 $175,111
Totals 49,746 $2,633,016

The combined total of all nine insiders was a hefty $3.4 million worth of stock.

Click to Enlarge

Courtesy of stockcharts.com

The accompanying chart shows the run-up in price of HOG over the past six months. However, you can also see from the relative strength indicator and stochastic oscillators that the stock’s momentum has begun to weaken. Declining momentum, along with insider selling, is a huge red flag going forward.

Remember that selling by one corporate insider is meaningless, but when a large group of insiders begins to sell (especially within one or two months of an earnings report), that’s much more significant.

Also, these were not automatic, timed sales, but rather discretionary sales on the open market. Since most insiders are well aware of the current valuation of their stock by historical standards, large sales by multiple insiders should be seen as a red flag.

Setting Up for a Drop at Dunkin?

The second stock where recent heavy insider selling took place is Dunkin Brands Group (NASDAQ:DNKN[4]), the operators of the well known Dunkin’ Donuts and Baskin Robbins stores. In fact, much insider selling has been going on at DNKN since February, but it really accelerated in April.

Director Jon L. Luther initiated the selling near the beginning of the month with over $15.5 million worth of shares, and the other officers followed suit near the end of the month.

Insider, Title Price Sold No. of Shares Sold Total Value
JON L. LUTHER, Director $28.47 546,646 $15,563,011
PAUL E. TWOHIG, Officer $32.44 21,407 $694,443
KAREN RASKOPF, Officer $32.35 10,250 $331,587
RICHARD J. EMMIT, Officer $33.19 4,486 $148,890
Totals 582,789 $16,737,931

Click to Enlarge

Courtesy of stockcharts.com

Interestingly, the chart of DNKN is very similar to HOG’s. Like Harley, Dunkin has also run up since December, and it too shows a weakening of the oscillators from overbought levels. 

When an overbought stock with weakening technical indicators shows insider sales, alarm bells should go off in the minds of investors. The best course of action for those who are long these stocks is to tighten stops or consider buying protective puts. Investors who aren’t long may choose to short the stock, buy puts of six weeks or longer, or simply wait for the inevitable pullback.

So before you go “HOG wild” in buying shares of any stock, always consider the recent activity among the insiders, and make sure you’re trading on the same side as them!


  1. GMCR: http://studio-5.financialcontent.com/investplace/quote?Symbol=GMCR
  2. advance knowledge of insider transactions: https://investorplace.com/2012/05/insider-selling-hinted-at-green-mountains-cliff-dive/
  3. HOG: http://studio-5.financialcontent.com/investplace/quote?Symbol=HOG
  4. DNKN: http://studio-5.financialcontent.com/investplace/quote?Symbol=DNKN

Source URL: https://investorplace.com/2012/05/2-more-insider-selling-warnings/
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