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Stocks With Huge Insider Selling, Buying - 22541 views
According to a weekly report out of Bloomberg, the total amount of insider buying was $21.4 million and the total amount of insider selling was $1.3 billion. This marked the largest amount of total selling by corporate insiders so far in 2011.
The trend of a lack of insider buying continues to concern me because even when we do get some large insider buying, it’s concentrated in only one or two companies. The more alarming corporate insider activity is the continued trend of insiders dumping huge amounts of stock. At some point, the argument of profit-taking is going to lose its merit due to the massive amounts of insider selling we continue to see at some of the largest companies in the world.
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Are corporate insiders worried about inflation taking down the economy and their stock prices? Are they worried that the global unrest like we’re starting to see in the Middle East is going to derail world economies? Are they concerned about the longer term implications of quantitative easing which could spark a U.S. dollar crisis? It’s probably a combination of all of these things that’s motivating corporate insiders to be net sellers of their own stocks.
Despite the entire insider selling at S&P 500 companies that we’ve now seen as a persistent trend for months, the overall U.S. stock market continues to trend higher. For now, the market still doesn’t care about all of these insiders who are dumping such large amounts of stock. I have been making it clear for months that this trend of large insider selling is a red flag, but it’s not a reason to run out and short the market or get out of your long stock positions.
Let's take a look at some of the S&P 500 stocks with the most insider buying and selling during the period.
The ratio of insider selling to buying would’ve been a lot worse had it not been for one major insider purchase. Chairman and CEO Rupert Murdoch bought 1.2 million shares, or $20.2 million worth of stock, at an average price of $16.81 of global media company News Corp. (NWSA). Murdoch’s move was the only insider purchase for the week that totaled over $1 million worth of stock.
Major News Corp. bulls include Seth Klarman's Baupost Group, which maintained a 19 million-share position in the stock in the most-recent quarter; News Corp. is Baupost's third-largest holding, at 16% of the total portfolio. Frank Byrt included it as one of five media stocks worth a look in 2011, and it's one of TheStreet Ratings' top-rated media stocks.
Boston Scientific, Dell
Boston Scientific is one of Bridger Management's top holdings, at 2.51% of the total portfolio. Lee Ainslie's Maverick Capital increased its position in Dell, one of TheStreet Ratings' top-rated computer hardware stocks, by 106.5% in the most-recent quarter.
The largest insider selling for this period was seen in software giant Microsoft (MSFT), a stock that has been showing up at the top of the S&P 500 insider selling list for months now. Insiders at Microsoft sold 15 million shares, or $417.8 million worth of stock, at an average price of $27.80 a share. Almost all of the selling was done by the chairman of the board Bill Gates. It seems like when it’s not Gates, its CEO Steven Ballmer who’s dumping large amounts of stock in Microsoft.
This continues to be the reason why I personally avoid ever owning this stock. When you consider that they are so many companies out there whose insiders aren’t dumping close to half a billion worth of a stock at a clip, it makes it pretty easy to steer clear of this name. I would change my mind if we could see a sustained period of time where these guys stop selling millions worth of their own stock.
If you need another reason to avoid Microsoft, just take a look at the underperformance of the stock so far in 2011. Shares of Microsoft are down 2% so far this year, while the Nasdaq is up close to 6.7%. I doubt that I am the only one who's avoiding this name due to its lack of an uptrend and constant insider selling.
The second largest amount of insider selling for this period was in global stock exchange Nasdaq OMX Group (NDAQ). Insiders at Nasdaq OMX sold 10.3 million shares, or $268 million, worth of stock at an average price of $26.05 a share. Most of the selling at Nasdaq OMX was done by director Glenn H. Hutchins, who according to Form4oracle.com has liquidated his entire stake in the company. This stock has been off to a hot start in 2011 with shares up around 20%.
From a technical standpoint, this stock is currently in a solid uptrend where it has been making higher highs and higher lows. This demonstrates that investors have been snapping up shares of NDAQ on any dip. Market players should now watch for this stock to trade above some near-term resistance at around $30 a share. A move above that level should set up NDAQ for a test of the next areas of past overhead resistance at around $35 to $39 a share.
We saw another key insider selling a large amount of stock during this period at diversified power management firm Eaton (ETN). CEO Alexander Cutler sold 239,114 shares, or $26.4 million worth of stock, at an average price of $110.20 a share. Cutler was busy exercising options in the open market to reap in his huge windfall. During the last six months, shares of Eaton have risen from a low of around $62 to its current price of close to $110 a share. That’s quite a run, so you really can’t blame Cutler for locking in some profits.
From a technical standpoint, Eaton have started to stall out at around $113 a share and the stock is now in jeopardy of trading below some near-term support at around $109 to $108 a share. If the stock breaks those support levels, then a test of the next previous support level could be in the cards which would take the stock down to $102 a share.
As of the most-recent reporting period, David Williams' Columbia Value & Restructuring Fund has a 1.75 million-share position in Eaton, which comprises 2.7% of the total portfolio. Eaton was one of Goldman Sachs' six best industrial stocks for 2011.
Key insiders were also dumping large amounts of stock at technology-based company Corning (GLW). Insiders at Corning sold 823,326 shares, or $18.6 million worth of stock, at an average price of $22.60. Some of the key insiders who were selling included Vice Chairman and CFO James Flaws and Chairman, CEO and President Wendell P. Weeks. Flaws exercised some options to reap around $2.95 million in profits, and Weeks also exercised some options to lock in about $4.3 million in profits. This stock is up around 19% year-to-date, so most likely these insiders are taking advantage of a strong tech sector to let go of some of their option holdings.
From a technical standpoint, traders should watch for Corning to breakout above some near-term overhead resistance at around $23.43 a share. A move above that level could setup the stock for a test of the next significant resistance level which is currently at around $27.50 a share. I never love when I see key insiders selling large amounts of stock on any company, but as long as the trend in the stock still looks good I won’t fight it.
Corning is the top holding of Lee Ainslie's Maverick Capital, comprising 4.3% of the total. Ainslie decreased his position in the stock by 4.7% in the most-recent quarter but still owns 19.7 million shares. Barclays named Coring one of its 30 best stock picks for 2011.
One sector that saw a number of companies where insiders were selling large amounts of stock was in the energy complex. Insiders at oilfield service player Baker Hughes (BHI) sold around $16 million worth of stock, insiders at global integrated energy firm Hess (HES) sold about $15.6 million worth of stock, and insiders at natural gas player Spectra Energy (SE) sold $14.3 million worth of stock. Clearly, these insiders are taking advantage of the bullish action in commodity prices which has helped to boost their stock prices.
Even with Spectra Energy, where natural gas prices haven’t been acting very bullish, the company was still able to report a 45% jump in fourth-quarter earnings on Feb. 4 due to improvements in liquefied natural gas prices and a strong Canadian dollar. The quantitative easing policy enacted by Federal Reserve has done a lot to help lift commodity prices and corporate insiders are simply taking advantage of this.
Spectra is one of the top holdings of James Barrow at Barrow Hanley Mehinney & Strauss, comprising 2.5% of the total portfolio, with 46.6 million shares held. According to WallStreetNewsNetwork, it's one of the highest-yielding gas utility stocks.
One more company worth mentioning whose insiders were dumping a large amount of stock is market leader and robotic surgery player Intuitive Surgical (ISRG). This stock has been one of the best performers so far in 2011 with shares up around 32%. Intuitive Surgical was the fifth-highest name on the insider selling list among S&P 500 companies. Insiders sold 937,874 shares, or $26.5 million worth of stock, at an average price of $331.01.
Most of the selling at ISRG was done by director Robert W. Duggan. According to form4oracle.com Duggan liquidated around 96% of his total holdings in ISRG.
From a technical standpoint, ISRG has recently hit some heavy resistance at around $347 a share and sold off down to its current price of $340. Traders should look for higher prices if the stock can breakout and move above $347, but if that doesn’t happen and the stock continues to drift lower, then look for support around $330 to $320 a share.
To see more stocks with notable insider activity, check out the S&P 500 Stocks With Notable Insider Activity 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.