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Massive Clusters of Insider Selling Registered at Costco (COST) and 2 Other Companies

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It’s common knowledge that corporate insiders sell their shares for a wide variety of reasons. Directors and executives may want to simply diversify their holdings, purchase a new house or yacht, pay for a divorce or fund a charity. For that reason, insider selling activity generally tends to send the wrong message to the investment community. Nonetheless, it is highly unlikely that three or more insiders are simultaneously cashing out portions of their holdings simply because they all need the cash for personal purchases. To diminish the odds of wrongly interpreting insider selling activity, retail investors should mostly look for clusters of insider selling. Investors should also bear in mind that heavy insider selling at a company does not necessarily imply that the stock represents a good short-selling opportunity. Investors and other insider trading observers should interpret heavy insider selling (being three or more insiders selling shares in the past 30 days) as a sign that companies are approaching or exceeding insiders’ own assessments of its fair valuation. With that in mind, the following article will lay out a list of three companies that recently witnessed noteworthy clusters of insider selling.

Through extensive research, we have determined that the due diligence that the investors in our database employ, as well as their long-term focus makes them perfect targets to emulate. However, the results of our analysis have also shown that the small-cap picks of these funds can generate much better returns, with the 15 most popular small-cap stocks beating the market by an average of 95 basis points per month (read more details here).

Let’s kick off our discussion with Costco Wholesale Corporation (NASDAQ:COST), which had three different executives unload shares this past week. To begin with, Franz E. Lazarus, Executive Vice President of Administration and Human Resources, unloaded 20,000 shares on Friday at prices that ranged from $152.75 to $154.04 per share, all of which were held through the Lazarus Family Trust that continues to own 3,280 shares. The EVP also holds a direct ownership stake of 27,588 shares. Moreover, Executive Vice President of International, James P. Murphy, sold 15,000 units of common stock a day earlier at prices varying from $154.23 to $154.51 per share, trimming his stake to 42,412 shares. Last but not least, Dennis R. Zook, Executive Vice President, COO of Southwest Division and Mexico, offloaded 4,075 shares last Monday for $152.96 each, cutting his overall holding to 28,158 shares.

Costco Wholesale Corporation (NASDAQ:COST) has been a stock market darling for the past several years, as its shares have advanced by a whopping 107% over the past five years. However, the shares of the wholesaler are flat during the past 12 months, which, along with the recent insider selling, might suggest that the company has reached a fair valuation. The operator of membership retail outlets generated net sales of $54.19 billion during the 24 weeks that ended February 14, up from $53.16 billion reported for the same period of the previous year. However, the company’s same-store sales growth appears to be slowing lately, as comparable store sales were flat in the first half of fiscal year 2016. This figure was mainly impacted by foreign currency headwinds and a decrease in gasoline prices in the first half of fiscal year 2016. Costco’s membership fees, from which the company derives the majority of its income (because managing memberships is not associated with significant costs), increased by 3% year-over-year in the first half of the 2016 fiscal year. More importantly, membership fees excluding the impact of foreign exchange increased by 6% year-over-year due to sign-ups at existing and new warehouses and a higher number of upgrades to the company’s higher-fee Executive Membership program. Shares of Costco are currently trading at 25.3-times expected earnings, versus the forward P/E multiple of 15.6 for Wal-Mart Stores Inc. (NYSE:WMT) and the ratio of 14.2 for Target Corporation (NYSE:TGT). Warren Buffett’s Berkshire Hathaway holds the largest equity stake in Costco Wholesale Corporation (NASDAQ:COST) within our database, owning 4.33 million shares as of December 31.

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Let’s head to the next page of this insider trading article, where we reveal the insider selling registered at Graphic Packaging Holding Company (NYSE:GPK) and RSP Permian Inc. (NYSE:RSPP).

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