U.S equities’ awful start to 2016 is gradually getting even worse, which could make investors conclude that the ratio of insider selling to insider buying has dropped significantly in recent weeks. However, last week’s volume of both insider selling and insider buying more than tripled relative to the previous week, while the insider selling to buying ratio remained unchanged. So why are insiders still selling nine-times more worth of stock than buying, when U.S equities keep going down? One explanation could be that most companies witnessing high insider selling have seen their share prices appreciate significantly over the past several months, so insiders are taking some profits off the table. Put differently, insiders are mostly selling strong performing stocks and are holding onto bad performing stocks. Even so, the fact that insiders are selling at a very high pace when companies’ valuations are plummeting on a daily basis might serve as cause for concern. Having said that, the following article will discuss noteworthy insider sales registered at three companies recently.
Prior to discussing the insider trading activity, let’s make you familiar with what Insider Monkey does. At Insider Monkey, we track hedge funds’ moves in order to identify actionable patterns and profit from them. But why do we track hedge fund activity? From one point of view we can argue that hedge funds are consistently underperforming when it comes to net returns over the last three years, when compared to the S&P 500. But that doesn’t mean that we should completely neglect their activity. There are various reasons behind the low hedge fund returns. Our research indicated that hedge funds’ long positions actually beat the market. In our back-tests covering the 1999-2012 period, hedge funds’ top small-cap stocks beat the S&P 500 index by double digits annually (read the details here).
The insider selling activity has been relatively high at Eli Lilly and Co (NYSE:LLY) thus far in 2016, but most insider sales were made in connection with freshly-exercised stock options. However, there was some insiders who sold more shares than the amount of exercised options. For instance, Stephen F. Fry, Senior Vice President of Human Resource and Diversity, sold 15,230 shares on Friday at prices that ranged from $74.75 to $75.07 per share, trimming his overall holding to 59,690 shares. He discarded an additional 6,547 shares earlier this month, after having exercised 7,252 restricted stock units.
The shares of the Indianapolis drugmaker are down by nearly 12% so far in 2016, but are up by 5% over the past year. The recent insider selling comes after the company released its financial results for the fourth quarter and full 2015 year. Eli Lilly and Co (NYSE:LLY) reported revenue of $19.96 billion for 2015, which marked an increase of 2% year-over-year. The company’s net income for the year also grew by 1% to $2.41 billion. Numerous analysts and financial hubs have great expectations for the company’s future performance, citing its strong product pipeline. However, insiders are widely-known for their contrarian approach to investing, which partly explains the recent insider selling. In the meantime, the stock trades at a forward P/E multiple of 18.58, which is above the average of 16.3 for the drug retail industry. The drugmaker’s management anticipates worldwide revenue in the range of $20.2 billion to $20.7 billion for 2016, which doesn’t suggest that the company is facing grim prospects in the near future. Donald Chiboucis’ Columbus Circle Investors lifted its holding in Eli Lilly and Co (NYSE:LLY) by approximately 348,000 shares during the fourth quarter to 1.60 million shares.