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S&P 500 Stocks With Big Insider Selling - 9960 views
According to a weekly report out of Bloomberg, the total amount of insider buying was $35.7 million and the total amount of insider selling was $512.3 million. Once again, the insiders at S&P 500 companies are dumping large amounts of stock.
This persistent trend of heavy selling by the people who know the most about the future prospects for their companies continues to concern me. The previous week's selling-to-buying ratio was 177 to 1, so 14.4 to 1 might look like a big improvement, but one major insider buy basically skewed the entire ratio.
Corporate insiders at Titanium Metals (TIE) purchased 2 million shares, or $34.1 million worth of stock, at an average share price of $17.07. This comes on the heels of a $2.5 million purchase two weeks ago by the chairman of the board, Harold Simmons. So who was the big buyer for this reporting period? You guessed it. Once again, Simmons stepped up and took down just over $34 million worth of stock. There’s one thing that I can say about this move by Simmons: It’s extremely bullish.
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It’s one thing for a key corporate insider to buy a few million dollars worth of stock, but when you see the chairman of the board step up to the plate and buy $34 million worth, it’s a good idea to start take notice and start looking into the company. Titanium Metals produces and sells titanium sponge, melted products and various mill products for commercial aerospace, military, industrial and other applications. This company is also considered a solid play on rare earth metals, considering it’s one of the largest holdings in the Market Vectors Rare Earth Metal ETF (REMX), making up 5.5% of the total assets.
Another notable insider purchase during this reporting period was seen in Midwest regional bank Huntington Bancshares (HBAN). Huntington provides commercial and consumer banking services to customers in such states as Ohio, Michigan, Pennsylvania, Indian and West Virginia. Corporate insiders at Huntington bought 163,400 shares worth $1 million, at an average price of $6.30. This is good to see at Huntington because the insiders are buying into strength, with the stock up over 80% in 2010. Also, the company just finished its repurchase of $1.4 billion in TARP funds, so that’s a big overhang that is now lifted from the stock
Other than these two purchases, insider buying for S&P 500 companies for this reporting period was relatively unremarkable. Again, this is cause for concern because in a healthy bull market, it’s not a far fetch to see corporate insiders participating in the uptrend by buying their stocks. I have always been told that insiders can sell their stock for a number of reasons, but they only buy for one: They see value in the stock and think it has upside potential. Well, if we have a market in which the insiders are selling big week after week -- and at the same time we see little buying -- then it’s hard not to conclude that they just aren’t finding much value.
Only time will tell if the heavy insider selling we continue to see is foretelling of what lies ahead for U.S. equities markets.
Here's a closer look at a few of the top 20 S&P 500 stocks with the largest amount of insider selling.
The top five stocks on the insider selling list for this reporting period were Google (GOOG), Polo Ralph Lauren (RL), UnitedHealth Group (UNH), General Dynamics (GD) and Starwood Hotels & Resorts (HOT). The total amount of selling just in these five stocks alone came in at close to $200 million worth. Interestingly, these five companies make up a broad range of sectors and industries. We have Google with tech, UnitedHealth with health care, General Dynamics with aerospace and defense, Polo Ralph Lauren with high-end retail and Starwood Hotels & Resort with travel and leisure.
So what’s the takeaway from this broad range of selling? This tells me that key corporate operators could be worried about the future of the entire economy going forward. Yes, I know a lot of the selling is profit-taking since many of these stocks are up huge. But ask yourself: If you were running a company and thought the economy was truly on track to recover in the near future, wouldn’t you hold on for even more profits? I know I would, so I think it’s important that investors view all of this selling as a potential statement. The broad range of the selling across so many different sectors could be just the clue we need to recognize that the economy isn’t truly on the recovery track that many think it is.
Again, only time will tell, and we will see warning signs of a bear market in progress before it takes complete control. For example, watch for market-leading stocks to stop leading, key moving averages to get broken on big volume and speculative stocks to get annihilated.
The energy sector saw some notable insider selling during this reporting period. Insiders at Peabody Energy (BTU) sold 276,778 shares, or $17.1 million worth of stock, at an average price of $61.86. Most of that selling was done by two officers through the exercising of options. Insiders at National Oilwell Varco (NOV) sold 244,000 shares, or $15.6 worth of stock, at an average price of $64.05. Most of that selling was done by the president and CEO, Merrill A. Miller Jr. Miller exercised a slug of options here that weren’t due for expiration until 2016 and 2017. According to SEC filings, Miller still controls about around 583,000 shares, but this selling did reduce his total holdings by 29% from 816,000 shares.
In addition to Google, the technology sector was also hit with a ton of selling for this period in leading names such as Qualcomm (QCOM), Novellus Systems (NVLS), Salesforce.com (CRM) and Citrix Systems (CTXS). The largest, besides Google, was seen in Qualcomm, where insiders sold 279,808 shares, or $13.9 million worth of stock, at an average price of $49.57. Some of the selling at Qualcomm was done by the Chairman and CEO, Paul Jacobs, who exercised some options worth around $1.48 million. This took his entire holdings down by only around 2%, which isn’t something I would get too worried about.
In fact, as I look over most of the selling in these tech stocks, I didn’t see an overwhelming amount of activity that popped out as a major red flag in terms of a key insider reducing total holdings by a large percentage. However, I would point out that the insiders at Salesforece.com, including the CEO Marc Benioff, seem to be regular sellers of their stock, showing up frequently on the weekly list of largest S&P 500 insider sales.
If this trend of insider selling at Salesforece.com continues to occur, then I would fully expect it to leave an overhang of supply on the stock that pressures the shares lower. If you’re looking to buy this name, I would suggest waiting until the insider selling abates. Keep in mind that Beinoff still controls a lot of stock at around 10 million shares. However, if he continues to dump around 1% of his holdings on a near-daily basis as he has been doing for the past couple of months, that could be an issue for the stock going forward.
One final note on the selling in tech that I did uncover was an open market sale by Nikesh Arora at Google. Arora is the president of global sales and business development at Google, and according the company’s Web site, he oversees all revenue and customer operations, as well as marketing partnerships. It looks like over the past couple of months, Arora has reduced his total holdings by 66%, from around 49,000 shares to around 17,000 shares. During this reporting period he sold 4,062 shares, worth around $2.4 million, at a sale price of $592.85. I didn’t originally consider Arora to be a key insider at Google, but after looking at his corporate duties, maybe I should.
To see more stocks with recent heavy insider selling, check out the Top 20 S&P Stocks With Big Insider Selling portfolio on Stockpickr.
-- Written by Roberto Pedone in Winderemere, Fla.
At the time of publication, author had no positions in stocks mentioned.
Roberto Pedone, based out of Windermere, Fla., is an independent trader who focuses on stocks, options, futures, commodities and currencies. He is also an outside contributor to Beconequity.com and maintains the website Maddmoney.net, which he sold to Blue Wave Advisors in 2008. Roberto studied International Business at The Milwaukee School of Engineering, and he spent a year overseas studying business in Lubeck, Germany.