Some retail investors may ask why anyone would track insider selling activity. While retail investors may not be able to generate noteworthy profits by shorting stocks with insider selling activity, past research provides evidence that companies with heavy insider selling do tend to underperform companies with noteworthy insider buying, so it does pay to keep track of insider selling as well. Insider Monkey interprets clusters of insider selling or even robust individual insider sales as a sign that companies could be approaching a fair valuation. Most analysts, numbers-crunchers at financial hubs, and hedge fund analysts employ various valuation models to estimate the “fair” value of particular companies, which involves numerous assumptions and projections. However, corporate insiders appear to have their own valuation models that are based on their own perceptions, which has proven to be more accurate than the ones employed by non-insiders. Having this in mind, we will examine some mild insider selling registered at three companies, as well as discuss the performance of those companies.
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Let’s start off our discussion by looking into the recent insider trading activity at Applied Materials Inc. (NASDAQ:AMAT). Susan M. James, a member of the company’s Board of Directors since December 2009, discarded 8,980 shares on Wednesday at prices that ranged from $20.73 to $20.86 per share, trimming her overall holding to 70,373 shares. Analysts at D.A. Davidson & Co. downgraded Applied Materials on the same day to ‘Neutral’ from ‘Buy’, saying that the shares of the semiconductor company have enjoyed a “meaningful” run in recent months, as shares have risen from $17 at the beginning of February to nearly $21, closing in on D.A. Davidson & Co.’s price target of $23 on the stock. The recent rate downgrade appears to support our thesis that insider selling serves as a sign of a stock approaching a fair valuation based on current circumstances (these can of course change at any time, for better or worse).
Applied Materials Inc. (NASDAQ:AMAT) is a provider of manufacturing equipment, services and software to the semiconductor, display, solar photovoltaic (PV) and other related industries. The company’s financial and stock performance are highly dependent upon the global demand for semiconductors, which is consequently driven by end-user demand for electronic products. The major customers of the semiconductor equipment maker include Taiwan Semiconductor Mfg. Co. Ltd. (ADR) (NYSE:TSM) (13% of net sales for the first quarter of fiscal year 2016 that ended January 31), Micron Technology, Inc. (NASDAQ:MU) (11%), and Samsung Electronics Co. (10%). Considering that TSMC and Samsung produce the A9 chips used in Apple Inc. (NASDAQ:AAPL)’s newest iPhones, Applied Materials will most likely continue to grow in the upcoming quarters, thanks to the launch of the iPhone SE. Moreover, it is believed that Apple intends to switch to an OLED (organic light-emitting diode) display from the current LCD (liquid crystal display) screen, which will possibly add more business for Applied Materials. However, it should also be noted that another Apple supplier, Foxconn, recently purchased Sharp and will reportedly begin producing AMOLED displays, making it the potential frontrunner to supply screens for Apple’s rumored 5.8″ AMOLED curved-screen iPhone planned for 2017.
Shares of Applied Materials are up by 11% since the beginning of 2016 and change hands at around 12.9-times expected earnings, beneath the forward P/E multiple of 14.3 for the Semiconductor Equipment sector. The company distributes an annualized dividend of $0.40 per share, which equates to a current dividend yield of 1.9%. The smart money sentiment towards the semiconductor company declined in the final quarter of 2015, with the number of funds invested in the company shrinking to 41 from 54 quarter-over-quarter. Larry Robbins’ Glenview Capital trimmed its stake in Applied Materials Inc. (NASDAQ:AMAT) by 58% during the December quarter, ending 2015 with 8.24 million shares.
American Campus Communities Inc. (NYSE:ACC) registered a cluster of insider selling in the past two weeks, though the dollar volume of those insider saleswas not overly significant. To begin with, William W. Talbot, Chief Investment Officer and Executive Vice President, offered 584 shares as a bona-fide gift on Wednesday and sold 5,435 shares on Thursday for $46.00 each, cutting his overall holding to 61,237 shares. Director Dennis G. Lopez offloaded 1,856 shares on Thursday at a weighted average price of $46.08, which reduced his ownership to a mere 2,647 shares. Last but not least, James C. Hopke Jr., Executive Vice President and Chief Operating Officer, sold 6,498 units of common stock last Monday at an average price of $45.73 per unit. Following the not-so-distant sale, Mr. Hopke holds an ownership stake of 45,054 shares.
American Campus Communities operates as a real estate investment trust (REIT) focused on owning, managing and developing student housing properties across the United States. The REIT’s owned and third-party-managed portfolio comprises 201 properties with 128,900 beds as of the end of 2015. The shares of the REIT have been on a steady uptrend since mid-September, advancing by nearly 12% since the beginning of the year. Therefore, the fresh cluster of insider selling might represent yet another example of fair valuation being reached.
On the other hand, top-line results of American Campus Communities have been growing steadily over the past several years, while the company’s stock performance has not followed suit. The REIT’s 2015 revenue reached $753.38 million, up from $733.92 million in 2014, $657.46 million in 2013 and $465.66 million in 2012, while shares have only gained about 12% since the beginning of 2012. Meanwhile, funds from operations (FFO) totaled $271.38 million in 2015, up from $259.23 million in 2014, $236.78 million in 2013, and $168.36 million in 2012. The company’s revenue from same-store properties increased to $704.91 million in 2015 from $690.58 million in 2014 as a result of an increase in average rental rates, as well as an increase in weighted average occupancy to 95.4% from 94.9% in 2014. And although the company’s recent stock performance has weighed on its dividend yield, the REIT continues to offer an attractive yield of 3.46%, paying an annualized dividend of $1.60 per share.
The number of hedge funds with stakes in the REIT dropped to 11 from 15 during the final quarter of 2015. Jeffrey Furber’s AEW Capital Management reported ownership of 1.12 million shares of American Campus Communities Inc. (NYSE:ACC) through its 13F for the October-to-December period.
Everest Re Group Ltd (NYSE:RE) has witnessed four different corporate insiders offload shares thus far in 2016, so let’s examine the most recent insider selling. Director John R. Dunne unloaded 600 shares on Wednesday at $195.00 apiece, reducing his ownership to 10,779 shares. Roger M. Singer, another member of the company’s Board, sold 1,000 units of common stock at the beginning of March for a slightly lower price of $189.97 per share. Mr. Singer currently owns 10,779 shares.
Everest Re Group primarily engages in the underwriting of reinsurance and insurance in the United States, Bermuda, and other international markets. The company’s products include various property and casualty reinsurance and insurance coverages, which include marine, aviation, surety, medical malpractice, and directors’ and officers’ liability, among other things. Shares of Everest Re Group have advanced by 8% in the past year despite suffering a major pullback in January. The company’s gross written premiums for 2015 reached $5.88 billion, which represents an increase from $5.75 billion in 2014 and $5.22 billion in 2013. The 2015 increase in gross written premiums reflects a 25.8% increase in its insurance business and a 69.1% increase from the Mt. Logan Re segment, which represents business for segregated accounts. The growth in insurance premiums was driven by increases in most lines of business, thanks to Everest Re Group’s increased focus on expanding that business.
Shares of Everest Re Group are currently trading at a forward P/E multiple of 10.4, below the multiple of 12.8 for the Property and Casualty Insurance industry. A total of 23 hedge funds in our system had stakes in the company at the end of December, amassing almost 9% of its outstanding common stock. Mason Hawkins’ Southeastern Asset Management owns 2.23 million shares of Everest Re Group Ltd (NYSE:RE) as of December 31.