Insider trading based on non-public information is a serious crime, but legal insider trading by company management that is publicly disclosed is a great way for retail investors to gain insight into what management thinks about a stock’s outlook.
Legal insider trading may not necessarily be a sign of a major catalyst ahead for a stock, but it could be an indication of optimism, pessimism or internal company morale. Company insiders are more aware of the inner workings of the business and the mood of a company’s specific market than anyone else.
Watch The Trends
Typically, insider selling is much more prevalent than insider buying simply due to the fact that many executives are paid at least in part in shares of stock. In that sense, a large portion of insider selling is essentially company management liquidating the equity portion of their paycheck.
Instead of reading too much into any individual insider sale or the ratio of insider sells to insider buys, traders should pay much more attention to changes in the amount of insider selling or shifts in the patterns of selling by particular executives.
A CEO selling $100 million worth of stock when he or she owns $10 billion total is not as meaningful as a vice president selling $100 million of a $150-million position.
Insider Selling Stocks
Here’s a look at the nine S&P 500 stocks that are being sold the most by company insiders. Rankings are sorted by the percentage change in total insider ownership, according to Finviz:
- Motorola Solutions Inc (NYSE: MSI), 94.8% decrease.
- Navient Corp (NASDAQ: NAVI), 93.8% decrease.
- Baxter International Inc (NYSE: BAX), 90.7% decrease.
- Estee Lauder Companies Inc (NYSE: EL), 83.2% decrease.
- Westinghouse Air Brake Technologies Corp (NYSE: WAB), 82.6% decrease.
- Garmin Ltd. (NASDAQ: GRMN), 82.4% decrease.
- Cerner Corporation (NASDAQ: CERN), 78.5% decrease.
- Alliance Data Systems Corporation (NYSE: ADS), 78.3% decrease.
- Hershey Co (NYSE: HSY), 77.4% decrease.
A pickup in insider selling may be most meaningful for underperforming stocks like Westinghouse and Alliance Data Systems, both of which have generated negative returns over the past year. If insiders had confidence in the near-term outlook for these stocks, they would theoretically be buying the dip rather than selling at lower prices.
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