We know that smart investors buy low and sell high. And as a group, corporate insiders are among the smartest. So why then are some insiders selling near 52-week lows? Shouldn’t an insider buy his or her own shares as valuation gets more attractive. At the very least, how about some token buying to help shore up investor confidence?
But no, as the shares of the companies they head — and know intimately — trade near one year lows, these C-level executives below are doing some selling. At best it looks bad. At worst the selling could be an indication the insider knows things — negative things — and believes his stock is going even lower. According to maritime tradition, the captain is supposed to be the last one off a sinking ship. What if these captains are leaving the ship along with the rats?
Insider selling is typically uninteresting — but when insiders sell near 52-week lows, it makes you wonder…
Now it’s probable there is nothing earthshaking going on at companies where insiders are selling near 52-week lows. As I’ve discussed previously, an insider may sell for any number of reasons:
Maybe its just portfolio rebalancing — insiders often have a majority of their wealth in their own company, and diversifying is prudent.
Possibly a corporate insider is selling near 52-week lows because he or she has a need for liquidity: A divorce settlement, starting a second business, or a downpayment on a 10,000 square foot home in Connecticut.
Most likely, insider selling represents an insider cashing-in stock options or shares granted to the insider as part of a compensation package. In this case, the insider can be seen as simply cashing a paycheck.
In all the above scenarios, insider selling does not reflect a negative opinion by the insider of her company’s shares. It just looks bad — the leadership of a company appearing to cut losses along with the uninformed masses.
Pre-arranged selling programs aren’t necessarily above suspicion
Also, some of the selling by insiders at 52-week lows reflects pre-arranged selling programs. Under these “10b5-1” plans corporate insiders may sell and buy shares in their companies by scheduling in advance trades for specific prices or times. Since the trades are pre-set, the plans allow insiders to buy and sell while avoiding being accused of trading on “material non-public information.” Which is of course, illegal insider trading.
At least, that’s how it’s supposed to work. As I’ve discussed previously, it seems that some insiders may find loopholes in prearranged trading plans that allow them to trade more profitably than insiders who don’t use 10b5-1 plans. Though the executives are supposedly locked into when they can sell or buy, apparently some insiders are able to game their own plans to trade more profitably.
If an insider’s stock suddenly plummets, it would be possible for the insider to terminate the selling trading plan. Or, why not just create a trading program in the first place that doesn’t sell near 52-week lows?
Insider selling near 52-week lows suggests there could be “something rotten in Denmark…”
The point is this: Even if there is an appropriate reason for an insider to sell as his or her stock trades near yearly lows, it looks bad. Certainly corporate insiders — especially C-level executives — are keenly aware of how insider selling might be interpreted by the investing pubic. Investors might have suspicions there’s something rotten in Denmark… So, from a public relations perspective, an insider might be well advised to wait for a bounce higher before selling. But these insiders went ahead and sold anyway — appearances be damned.
Is there something bad brewing at these companies? Probably nothing devastating. But it makes you wonder. If I owned these stocks, or if I was considering buying them, I would take a long, hard look at business developments. I’d probably pass on stocks showing insider selling at 52-week lows. Instead, I’d focus on stocks showing significant insider buying at 52-week lows.
Insiders selling within 10% of 52-week lows over the past week. C-level executives selling over $100K total in their own shares.
|Last Filing||Company||Symbol||Industry||# Insiders||Last Trade||Total Shares||Avg. Price||Total|
|29-May-2019||Citrix Systems, Inc.||CTXS||Internet Software & Services||1||28-May-2019||1,224||95||$ 116,280|
|28-May-2019||Tanger Factory Outlet Cente…||SKT||REIT – Retail||1||24-May-2019||6,878||18.06||$ 124,224|
|28-May-2019||Angi Homeservices Inc.||ANGI||Other||3||23-May-2019||22,436||14.56||$ 326,623|
|24-May-2019||Alkermes Plc.||ALKS||Drug Delivery||1||23-May-2019||110,000||24.88||$ 2,736,428|
|24-May-2019||Fibrogen Inc||FGEN||Biotechnology||1||23-May-2019||39,636||35.37||$ 1,402,045|
|24-May-2019||Standard Motor Products Inc.||SMP||Auto Parts||1||24-May-2019||13,713||45.6||$ 625,344|
|23-May-2019||Inovio Biomedical Corp.||INO||Medical Instruments & Supplies||1||21-May-2019||100,000||3.31||$ 331,000|
|23-May-2019||Contura Energy, Inc.||CTRA||Other||1||21-May-2019||1,986||56.5||$ 112,204|
|23-May-2019||DeVry, Inc.||ATGE||Education & Training Services||1||23-May-2019||2,953||43.07||$ 127,186|
|22-May-2019||Cognizant Technology Soluti…||CTSH||Business Software & Services||1||20-May-2019||3,343||60||$ 200,580|
|22-May-2019||FMC Corp.||FMC||Chemicals – Major Diversified||1||21-May-2019||33,000||73.09||$ 2,412,098|
Do not construe anything written in this post or this blog in its entirety as a recommendation, research, or an offer to buy or sell any securities. Everything in this blog is meant for educational and informational purposes only. Do your own research before investing and don’t risk more than you can afford to lose. This article expresses my own opinions, and I am not receiving compensation for it (other than from WhaleWisdom). I do not have a business relationship with any company whose stock is mentioned in this article. I or my associates may hold positions in the stocks discussed.