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

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.

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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.

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).

Graphic Packaging Holding Company (NYSE:GPK) had two of its corporate insiders offload sizable blocks of shares this past week. According to a freshly-submitted Form 4 filing, Chairman David W. Scheible discarded 200,000 units of common stock on Wednesday at prices ranging from $12.58 to $12.74 per share, trimming his overall holding to 1.17 million shares. Director G. Andrea Botta sold 20,000 shares a day later at a weighted average sale price of $12.96, which cut his equity holding to only 3,497 shares.

Graphic Packaging is a provider of paper-based packaging solutions for a broad portfolio of products in the food and beverage industries. The company’s 2015 net sales declined by 1.9% year-over-year to $4.16 billion, mainly due to the sale of its multi-wall bag and labels businesses in 2014, foreign currency headwinds and lower pricing. Graphic Packaging’s volumes were flat year-over-year, as the impact of sustained decline in demand in key markets for certain products, such as cereal and frozen and dry foods, was offset by new products. In mid-February, analysts at Jefferies cut their price target on Graphic Packaging to $15 from $17, but reiterated their ‘Buy’ rating on the stock. Jefferies believes that the company is “one of the most attractive high quality and defensive names in the group, with the stock trading with a 9.5% FCF yield”. Shares of Graphic Packaging are nearly 2% in the green year-to-date and trade at a forward P/E multiple of 14.3. This is slightly higher than the forward P/E ratios of 11.2 for International Paper Co (NYSE:IP) and 13.4 for its fiercest competitor, WestRock Co (NYSE:WRK). A total of 41 hedge funds in our system were invested in Graphic Packaging at the end of December 2015, amassing 28.30% of the company’s outstanding common stock. Iridian Asset Management, founded by David Cohen and Harold Levy, owns 27.37 million shares of Graphic Packaging Holding Company (NYSE:GPK) as of the end of the December quarter.

RSP Permian Inc. (NYSE:RSPP) witnessed a massive cluster of insider selling last week, with more than three insiders selling shares, so let’s take a brief look at the most noteworthy activity. To start with, Chief Operating Officer Zane W. Arrott sold 50,000 shares last week through multiple trades at prices that fell between $29.05 and $29.18 per share, all of which were held via Arrott Family Holdings LP. The family limited partnership continues to own 424,300 shares, while the COO holds an additional direct ownership stake of 94,789 shares. Tamara D. Pollard, Executive Vice President of Planning and Reserves, sold a 20,000-share block on Thursday at a weighted average price of $29.26, which was held via Pollard Resource Holdings LP. This entity continues to have ownership of 415,989 shares. The EVP also holds 36,877 shares directly. Chief Accounting Officer Barry S. Turcotte jettisoned 4,000 units of common stock on Tuesday at prices between $26.95 and $27.44 per share, trimming his exposure to RSP Permian to 32,440 shares.

RSP Permian is an independent oil and natural gas company that relies on unconventional oil and associated liquids-rich natural gas reserves in the Permian Basin of West Texas. The company’s Board of Directors recently approved a capital budget of $200 million-to-$260 million for drilling, completion, and infrastructure for 2016. This is down from capital expenditures of $391 million incurred during 2015. The company appears to be extremely well-positioned to execute its current capital program without adversely impacting the health of its balance sheet. RSP Permian had long-term debt amounting to only $698.65 million at the end of December 2015, and cash and cash equivalents of $142.74 million. More importantly, the company also had $600 million of unused borrowings under its revolving credit facility on December 31. The shares of the oil and natural gas company have advanced by 18% since the beginning of 2016, mainly owing to the recent rally in crude oil prices. Ken Griffin’s Citadel Advisors had 2.87 million shares of RSP Permian Inc. (NYSE:RSPP) in its portfolio at the end of 2015.

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