As the first month of the New Year is behind us, it’s a good idea to take a second and see where insiders have been dumping stock.
Earlier we looked at what insiders are buying, but insider selling can be equally important to track. Although a sale by an individual officer or director can be the result of anything from estate planning to a daughters dream wedding expense, when we see clusters of insider selling it is worth further investigation.
James Lorie and Victor Niederhoffer noticed this as far back as 1968 and wrote about in their paper, Predictive and Statistical Properties of Insider Trading. They wrote, “Insiders tend to buy more often than usual before large price increases and to sell more than usual before price decreases.”
Further studies and real world observations about insider selling demonstrated that this remains true today.
I check insider activity daily and most investors, and in particular most traders should consider doing the same. Applying your normal trading tools on a universe of stocks with a predisposition to move in one direction or another just makes sense.
At a minimum, a monthly check of insider selling and buying should part of the regular activity of anyone involved in the buying and selling of securities.
In reviewing the data of the last month I see that even as they were preparing to report fantastic earnings that blew away the analyst estimates, executives at Freescale Semiconductor Ltd (NYSE:FSL) were fairly aggressive sellers of the stock. In all, nine insiders were selling stock early in the month — the combined total sales were for nearly $500,000.
As oil prices have plummeted the past few months, the price of oil and oil services companies have followed the commodity lower in price. Apparently some insiders are not expecting a price rebound or earnings recovery anytime soon.
Insiders at several energy-related companies, including Schlumberger Limited (NYSE:SLB), Range Resources Corp. (NYSE:RRC), Tesco Corporation (USA) (NASDAQ:TESO),Broadwind Energy Inc. (NASDAQ:BWEN) and Baker Hughes Incorporated (NYSE:BHI) have engaged in insider selling by two or more officers and directors as prices were falling.
Selling into falling prices is a very disturbing sign to me and merits careful consideration if you own the stock, and should be a serious deterrent if you are thinking of buying a particular company right now.
Camden Property Trust (NYSE:CPT) is a multi-family real estate investment trust (REIT) whose shares have had a pretty good run. My son lives in one of their properties, and if his complex is indicative of management quality then this is a fantastic company.
However, after moving up more than 35% in the last year the shares are pretty richly valued — 45 times earnings and 2.6 times book value. Many insiders seem to think so as eight of them, including CFO Alexander Jessett and Chief Operating Officer Malcolm Stewart, have combined to sell more than $2.1 million in stock in January. Stewart, who sold 11,442 shares at $75.07, also bought 2,951 shares that day for between $10.51 and $11.38.
Checking insider selling and buying is relatively easy these days. The information is easily available at www.sec.gov and there a bunch of services that will email you the info every day. All the academic data and my personal experiences indicate that cluster buying and selling is highly predictive.
Checking the insider selling data on a regular basis needs to be part of your regular routine.
As of this writing, Tim Melvin did not hold a position in any of the aforementioned securities.