When Insiders Bail on a Stock, Take Notice

Making money in stocks in not an easy task. Trying to outguess corporate insiders is even tougher. But nobody should have a better idea of when to sell than the people running the company. Lucky for us, some publications will provide us with details of insider buys and sells, typically within days of their executions. That is often valuable information. The graphic below showed the five most heavily sold stocks by insiders year-to-date, ranked on the raw number of insider transactions rather than by dollar amounts. When almost $3.8 billion all together of those stocks have been dumped, we can assume corporate officers are more than satisfied with their sales prices. As of Dec. 3, each of the stocks were down 17.4% to 58.0% from the respective 52-week peaks. Palantir Technology , the second most sold stock by dollar value, was down the most and nearing its yearly low. Let's see why all those insiders might have been selling? Salesforce.com has been growing revenues and turned profitable after five straight years of losses dating from 2011 to 205. That said, the stock traded for about 74-times its 2021 estimate and a still-pricey 51.2-times next year's somewhat optimistic projected EPS. CRM appears to have already priced in years of growth. It's the classic conundrum for investors. The company shows solid growth prospects but at an extraordinarily expensive valuation. I simply cannot pay up that much for CRM and, apparently, neither can its insiders who have dumped over half a billion worth of shares so far this year. Datadog is even pricier. The shares closed near $165 last week on expected 2021 EPS of less than 30 cents. That puts this year's multiple at 589-times and 2022's price-to-earnings at 471-times. I can't fault anyone, including insiders, for bailing out of the stock. As of Dec. 4, insiders had cashed out $1.041 billion of their DDOG shares. That should give pause to anybody staying long the stock or thinking about buying in now, based on strong momentum. Palantir Technology has yet to make one penny of profits. It's not expected to make money in 2022, either. Momentum traders who bought near the top last winter are hurting bad. Even after dropping by 58% PLTR still commands 25.2-times sales, not earnings. Value Line's analyst only sees Palantir posting 10 cents in annual EPS within three to five years. That seems to explain why insiders have exited over $969 million in stock so far in 2021. Value Line does not yet cover DoorDash or Snowflake . Based on Yahoo Finance's data neither company appears to be worth anywhere close to what they are selling for. DASH is nowhere close to breaking even. It is not likely to be profitable in 2022 either. Snowflake has been edging closer to turning a profit but had a worse-than-expected quarterly report recently. The estimates shown below are both probably going to be adjusted downward before long. In the know insiders from SNOW have sold over $780 million worth of shares year-to-date. Why mess around with over-priced stocks that insiders have been exiting when so many true bargains are now available? The following five stocks are this year's top insider purchases so far in 2021. Joann Inc. hit a new all-time low last week at $8.51 before rebounding sharply to close on Dec. 3, 2021 at $9.95, where it yields over 4%. Its 52-week high was $17.50.

When Insiders Bail on a Stock, Take Notice

Let's see how corporate insiders know best what their shares are worth -- and how investors can learn from their moves.

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