Insiders Sell Out

4/13/2015


Wall Street wasn't much impressed with Macy's ($70; M) latest quarterly results, but one guy with an insider's edge is all in. Chief Human Resources Officer William Allen has purchased between 570 shares and 625 shares each month since September, spending a total of roughly $250,000.

Macy's, a Long-Term Buy, is an exception to the rule. Just 10 of our recommended picks have seen any kind of insider buying in the past six months. Aside from Macy's, none has experienced multiple purchases.

In the March quarter, only five of our recommended stocks had insider buying, as shown in the table below. The biggest transaction involved Gilead Sciences ($100; GILD), when one of its directors spent nearly $100,000 on 10,000 company shares in February. Yet that purchase was swamped as Gilead insiders unloaded more than 750,000 shares in the quarter. None of our stocks had a sell/buy ratio better than 26-to-1 in the March quarter.

The market's sell/buy ratio was 32-to-1 in the last reported week, according to First Call; anything above 20-to-1 is considered bearish, and the ratio spent more time in bearish territory than bullish during the quarter. Over the past six months, Schlumberger ($86; SLB) has the best sell/buy ratio of 22-to-1. Both Schlumberger and Gilead are Long-Term Buys.

Insiders include company officers and directors, along with investors who own 10% or more of a class of stock. Executives and other insiders don't always buy at the best time, but four of the five brave insiders who bought stock in our recommended companies in the March quarter saw their shares rise.

Macy's Allen has done pretty well. Paying an average of $62 per share for his repurchases since September, his investment has risen in value 10%, roughly tripling the S&P 500 Index's return. But for every share he has bought since September, Macy's insiders have sold 116 shares.

In theory, insiders have only one reason to buy: They expect the stock to rise. Selling is different.

While you should pay attention to heavy insider selling, don't overreact to it. Insiders sell for a variety of practical reasons. Many already hold a large amount of company stock, and selling to diversify holdings can make sense. Executives frequently dispose of shares shortly after their stock options exercise. And sometimes insiders simply sell to raise funds for personal use.

Although insiders often hesitate to buy stock for themselves, they remain eager to use corporate funds to repurchase shares. According to TrimTabs, in February S&P 500 companies announced buyback plans valued at $104.3 billion, up 90% from a year ago and the most since at least 1995.

STOCKS WITH INSIDER BUYING
Five recommended stocks saw insider buying in the March quarter. But even for these companies, selling outweighed buying. For instance, insiders at United Rentals ($93; URI) sold 26 shares for every one they bought.
--------------------------------- March-Quarter Insider Buying ---------------------------------
--- Total Return ---
Company (Price; Ticker)
Stock-
Market
Value
($Bil.)
No. Of
Trans-
actions
Date
Shares
Average
Share
Price
($)
Value
($)
Sell/Buy
Ratio
Out-
standing
Shares
(Mil.)
3
Months
(%)
12
Months
(%)
Gilead Sciences
($100; GILD)
159.5
1
2/6
10,000
100
999,150
75-to-1
1,597
2
38
J.P. Morgan Chase
($61; JPM)
229.9
1
1/16
9,050
55
498,384
34-to-1
3,765
4
6
Lear ($114; LEA)
9.3
1
3/17
2,500
108
270,750
82-to-1
81
21
42
Macy‘s ($70; M)
24.5
3
1/20, 2/17, 3/17
1,715
64
109,027
156-to-1
351
8
22
United Rentals
($93; URI)
9.6
1
1/23
2,500
87
217,700
 26-to-1 
103
4
9

 


Current Hotline

Stock Spotlight

Individual Stock Reports

ISRs make stock research easy!

Perhaps the most valuable two page reports available anywhere.

All the data you would normally have to plow through years of 10-K filings, earnings reports, and reams of market data to assemble — yours all in one concise report.

ISRs contain our proprietary Quadrix scores — find out how we rate all the stocks in the S&P 500.

Visit us at individualstockreports.com