The “information-rich” kind of insider trading activity, namely the kind that is not conducted using pre-arranged trading plans, has slowed meaningfully as most companies near the release of their latest quarterly earnings reports. While most publicly-traded companies have established blackout periods that restrict insiders from trading securities around earnings announcements, there are still some companies registering spur-of-the-moment insider trading at the moment.
Before looking into the fresh insider trading activity registered at several U.S companies, let’s try to understand why investors keep tabs on insider trading metrics. Insider buying usually represents a bullish sign given that corporate insiders buy their own company’s shares for only one reason: that they believe those securities are undervalued. On the other hand, an accurate interpretation of insider selling is much harder, as insiders can sell shares for a wide range of reasons that have nothing to do with their company’s prospects. Even so, heavy insider selling can serve as an alarming signal that may encourage outsiders to start selling shares as well in anticipation of bad times ahead. With that in mind, let’s have a look at some mild insider trading activity reported with the SEC on Wednesday.
Academic research has shown that certain insider purchases historically outperformed the market by an average of seven percentage points per year. This effect is more pronounced in small-cap stocks. Another exception is the small-cap stock picks of hedge funds. Our research has shown that imitating the 15 most popular small-cap stocks among hedge funds outperformed the market by nearly a percentage point per month between 1999 and 2012 (read more details here).
Two Insiders of Diamond Jewelry Retailer Purchase Shares
Signet Jewelers Ltd. (NYSE:SIG) had two different insiders purchase shares earlier this week. To start with, Sebastian Hobbs, Managing Director of the UK Division at Signet Jewelers, bought 500 shares on Monday for $91.72 each, lifting his overall holding to 8,684 shares. Board member Helen E. McCluskey snapped up 1,000 shares on Tuesday at a price tag of $89.91 each, which boosted her stake to 6,197 shares.
The world’s largest retailer of diamond jewelry has seen the value of its stock plummet by 27% since the start of the year, partly owing to concerns about the credit operations of the company and allegations that Signet’s employees swapped customers’ premium diamonds with lesser-quality substitutes. In late June, analysts at RBC Capital Markets lowered their price target on Signet Jewelers Ltd. (NYSE:SIG) to $120 from $140 and reiterated their ‘Outperform’ rating on the stock, citing “controversies around credit receivables sale”, slowing mall traffic and jewelry spending, negative publicity from reports of systematic ‘diamond swapping’, as well as increased uncertainty in the United Kingdom after the Brexit vote. Keith Meister’s Corvex Capital was the owner of 5.93 million shares of Signet Jewelers Ltd. (NYSE:SIG) at the end of March.
Massive Insider Sale Registered at Well-Known Auto Insurer After Earnings Release
Moving on to the camp of companies that witnessed insider selling, an executive of Progressive Corp (NYSE:PGR) offloaded a sizable block of shares earlier this week. John A. Barbagallo, the President of Commercial Lines Group, discarded 24,000 shares on Monday at prices varying from $33.00 to $33.05 per share. After this sizable sale, Mr. Barbagallo currently owns 148,139 shares.
The insider selling comes shortly after the fourth-largest auto insurer in the United States released its financial results for the second quarter of 2016. Progressive Corp (NYSE:PGR) has expanded its line of offerings by selling home insurance alongside its auto coverage. The roll-out of the company’s “Platinum” product, which offers a single offering that combines both home insurance and auto insurance, represents an important growth catalyst for the company. The company’s net premiums written for the second quarter grew by 13% year-over-year to $5.93 billion. Progressive shares are up by 3% thus far in 2016. Ken Fisher’s Fisher Asset Management cut its stake in Progressive Corp (NYSE:PGR) by 13% during the June quarter, to 170,702 shares.
Let’s head to the next page of this article where we’ll discuss the insider selling recorded at two other companies.