I was running my insider screens last night looking for stocks to buy, sell or just plain avoid and I made some interesting discoveries. The list of insider buys was pretty much what I had expected: small banks, REITs, business development and battered energy names dominated the list of companies with cluster buying and top executive open-market purchases. There were no surprises, and I am delighted that some of my holdings, like BRT Realty Trust (BRT), Westbury Bancorp (WBB) and several tiny banks, were seeing positive insider activity in the past month.
Where I was surprised was by the list of recent insider cluster selling. There can be many reasons for one individual officer or director to sell shares of the company they oversee, so I tend to focus more on those that have seen selling by three or more insiders in the past 30 days. This seems to be more indicative of a feeling that the stock price reflects current conditions and a little bit more for the company.
When I ran a screen while watching the outgunned Ducks try to keep up with Ohio State, I found information that challenges some current consensus views about the market and economy. If you talk to traders and investors, you get a view that oil stocks are getting cheap and that low oil prices are fantastic for consumer and travel-oriented companies. Some of the folks who run the energy and consumer companies do not appear to share that belief.
I was somewhat stunned to see energy-related stocks with recent insider selling. Insider buying has helped us uncover a couple of cheap stocks, like Tidewater (TDW), in the past month that are safe and cheap enough to own as oil declines. In my search of insider and 13D activity, I have noticed that energy insiders are buying and activist and value types are starting to wade into the sector as many of these stocks are down huge over the last quarter. I was surprised to see that a couple of energy names that have fallen by more than half their value this year are seeing cluster open-market selling by officers and directors.
I like Tesco (TESO) and have made money with the stock in the past. However, it appears that company insiders believe that the drilling slowdown will be deeper and last longer than some may hope. Four insiders have been selling shares since the beginning of the year. The stock looks cheap at 75% of book value but the folks running the show seem to think it may get cheaper as oil prices remain weak.
Shares of Goodrich Petroleum (GDP) are down more than 85% over the past year. The exploration and production company is highly leveraged and lower oil prices are going to hammer the bottom line. The bond market has its doubts about the company's ability to survive as outstanding debt issues are trading at $0.40 to $0.50 on the dollar. Insiders seem to have their doubts as well; five of them, including the CEO and CFO, have been selling shares even as prices have plunged.
Insider selling when stock prices are falling is very unusual. It tells me that they believe conditions for the company are not getting better anytime soon and the price is not yet a bargain. The selling in Tesco in particular also makes me think that T. Boone Pickens is correct and rig count in the U.S. is going to decline at a very rapid level.
I also found it curious that some of the companies that are supposed to be major beneficiaries are seeing cluster selling. Three insiders at Marriott International (MAR), including the CFO, have been selling shares in recent weeks. Three officers and directors at CarMax (KMX) have been selling stock in the open market. Costco (COST) would seem to be a likely candidate to accumulate a bunch of those dollars not going into gas tanks, but the stock has been sold by five insiders, including the CFO, in the past month. While insider selling does not mean the business is going to collapse, selling in the face of what should be a wildly bullish backdrop should make one pause before hitting the buy button.
Tracking insider buying has made me a good deal of money over the years. Insider selling can help us avoid potential permanent losses of capital by forcing us to ask ourselves why we want to buy something the executives and directors are selling.