Most analysts and traders are bullish on the stock market for 2016, but there are several nuances that point to grim prospects in the upcoming years. The rising-interest-rate environment, which may result in a stronger U.S. dollar, and a weakening global economy will most likely put more weight on earnings. The fourth-quarter earnings for the companies included in the S&P 500 are anticipated to decline by 4.9% year-on-year, which could mark the third consecutive quarterly earnings decline. Leaving the macroeconomic issues aside, numerous insiders have been selling their companies’ stock recently, which might scare off certain risk-averse investors. Of course, corporate insiders can cash out their holdings for a wide array of reasons that are not necessarily related to their companies’ current challenges or future developments, but this type of activity still represents an important aspect individual investors should take into account when analyzing a potential investment. With this in mind, the following article will discuss the insider selling reported at three companies and the recent performance of these companies.
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. Our research has shown that hedge funds’ large-cap stock picks historically underperformed the S&P 500 Total Return Index by an average of seven basis points per month between 1999 and 2012. On the other hand, the 15 most popular small-cap stocks among hedge funds outperformed the S&P 500 Index by an average of 95 basis points per month (read the details here). Since the official launch of our small-cap strategy in August 2012, it has performed just as predicted, returning over 102% and beating the market by more than 53 percentage points. We believe the data is clear: investors will be better off by focusing on small-cap stocks utilizing hedge fund expertise (while avoiding their high fees at the same time) rather than large-cap stocks.
Let’s kick off our discussion by looking into the insider trading activity witnessed at FMC Technologies Inc. (NYSE:FTI). Executive Vice President and Chief Financial Officer Maryann T. Seaman offloaded 8,500 shares on Wednesday at a price of $29.5 per unit, trimming his overall holding to 268,636 shares. The provider of technology solutions for the energy industry has seen its shares decline by over 33% since early 2015. The stock appears to be trading at an attractive trailing price-to-earnings ratio of 13.53 (this compares with the P/E ratio of 22.95 for the S&P 500 Index), but this valuation metric does not reflect the impact of the sustained oil-supply glut on the company’s future earnings. Numerous crude oil development prospects have been postponed due to the low crude oil price environment, which has in turn affected the demand for FMC Technologies Inc. (NYSE:FTI)’s products and services. Meanwhile, the depressed energy prices are believed to boost consolidation within the oil services industry, primarily because companies seek to strengthen their balance sheets and enhance bottom-lines as a result of synergies. Reportedly, a French oilfield services company called Technip has been in discussions with FMC Technologies about a potential combination. Ken Griffin’s Citadel Advisors LLC cut its stake in FMC Technologies Inc. (NYSE:FTI) by 12% during the July-to-September period, ending the quarter with 6.36 million shares.