by Tim Melvin | March 21, 2014 12:52 pm
If you don’t read on a daily basis, you’re handicapping your investment efforts big-time. I not only plow through stacks of SEC filings, but also other articles related to the markets and stocks. That’s because I’m not the only person who thinks about investing — financial media is full of information and ideas that can be of enormous benefit for finding safe, cheap stocks — and I don’t hesitate to use those ideas.
For instance, I recently found an article that discussed Professor Nejat Seyhun and his insider indicator. It seems that when Seyhun focuses on just officer and directors and excludes large shareholders, that aggregate insider buying and selling can be very predictive of market movements.
This article, written by well-known market observer Mark Hulbert, also pointed out that the officers and directors buy/sell index was currently at levels similar to those reached in 2007 just before everything went south. It’s also at levels similar to those just before our little market hiccup in 2011. Officers and directors of many companies are selling stocks at a high rate, and Hulbert says that’s a red flag.
Since I’m more of a stock picker than a market timer, it makes sense to me to combine this heightened level of caution with the aforementioned research that shows stocks with clusters of insider selling are likely to decline in value in the coming year.
The following is a list of stocks to sell or avoid, as they could be in for a negative double whammy.
I was almost disappointed to see that Cypress Semiconductor (CY) was up near the top of the double danger list. I am a big fan of CEO T.J. Rodgers but he is one of the largest sellers of Cypress shares. Five insiders have sold stock in the past month, and in all, they have sold 346,000 shares for more than $3.3 million since the first week of March.
In the face of such enthusiastic selling by those running the company, it is tough to make a case for buying or holding CY stock.
At first glance, shares of CenturyLink (CTL) look almost attractive. The stock is trading at just 12 times earnings right now and sports a monster dividend yield of 6.9%.
However, four officers and directors at the telecommunications company have sold more than 21,000 shares collectively in March.
CTL stock has lagged the overall market for the past year — down 9% vs. 20% gains for the S&P 500 — and it seems that those running the show do not expect that to change anytime soon.
Anadigics (ANAD) is another company that has not kept up with the market and is seeing selling near the lows. Five insiders, including the chairman, the CEO and the CFO, have been selling stock this month. All together, they have combined to sell more than 72,000 shares of the company at very low prices.
If they are not willing to bet on a turnaround at the semiconductor company in the foreseeable future, I am not sure investors should take a flyer on ANAD stock either.
As of this writing, Tim Melvin did not hold a position in any of the aforementioned securities.
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