Most shareholders of a company would be troubled by heavy insider selling, worrying that there is imminent trouble in the forthcoming future. However, investors should accurately interpret insider sales prior to cashing out their holdings or entering into short positions, as stock option compensations have significantly distorted the reality behind insider selling activity. Managers and employees of most companies are progressively offered stock options as part of their compensations, while the sales based on exercising of options are always reported with the SEC. Therefore, the fact that an insider sells freshly-exercised stock options does not necessarily represent a bad sign. Although insiders do not always rely on their perceptions of a company’s future prospects and profitability when selling shares, examining insider selling activity should still represent an important aspect of one’s stock analysis process. This article will reveal the insider sales registered at several companies, and will also discuss the recent performance of those companies.
Prior to discussing the insider trading activity, let’s make you familiar with what Insider Monkey does besides providing high-quality articles. We also track hedge funds and prominent investors because our research has shown that historically their stock picks delivered superior risk-adjusted returns. This is especially true in the small-cap space. The 50 most popular large-cap stocks among hedge funds had a monthly alpha of about six basis points per month between 1999 and 2012; however the 15 most popular small-cap stocks delivered a monthly alpha of 80 basis points during the same period. This means investors would have generated 10.0 percentage points of alpha per year simply by imitating hedge funds’ top 15 small-cap ideas. We have been tracking the performance of these stocks since the end of August 2012 in real time and these stocks beat the market by 53 percentage points (102% return vs. the S&P 500’s 48.7% gain) over the last 38 months (see the details here).
Let’s kick off our discussion by closely investigating the insider selling activity observed at Chubb Corp (NYSE:CB). Executive Vice President and Chief Financial Officer Richard G. Spiro discarded 15,000 shares on Tuesday at a weighted average price of $131.14, cutting his overall stake to 94,817 shares. On June 30, Chubb and ACE Limited sealed a merger agreement, under which ACE’s subsidiary William Investment Holdings Corporation is set to merge with Chubb while the new Chubb will act as a wholly-owned indirect subsidiary of ACE. Under the terms of the deal, each share of Chubb will be converted into the right to receive 0.6019 shares of ACE common stock and $62.93 in cash. Shares of Chubb Corp (NYSE:CB) are up 26% for the year, thanks to the aforementioned deal that is anticipated to close during the first quarter of 2016. Even so, the stock appears to be relatively cheap at the moment if solely looking at Chubb’s trailing price-to-earnings ratio of 15.07, which is significantly below the ratio of 23.18 for the S&P 500 companies. Going back to the deal between the two companies, this merger will create an international insurer behemoth with annual revenues of over $31 billion. Clint Carlson’s Carlson Capital acquired a 1.69 million-share stake in Chubb Corp (NYSE:CB) during the third quarter.