Are These Companies’ Insiders Cashing Out Too Early?

Tracking insider trading activity should represent a key part of the stock selection and analysis process of each investor. The logic behind tracking this kind of activity is very basic: executives and directors usually have more knowledge and comprehension of their companies’ business and industry than anyone else. Of course, insiders are not going to sell shares shortly before their companies release an earnings announcement knowing that it will disappoint investors, as that would be illegal, but they can sell shares with the belief that the stock may not perform well in the coming months and years. The Insider Monkey team pinpointed three companies that have recently witnessed heavy insider selling activity, so let’s see whether any firm-specific developments might explain the insiders’ activity and try to determine where these companies might be headed.

Prior to discussing the insider trading activity, let’s make you familiar with what Insider Monkey does besides providing high-quality articles. 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 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.

To start with, let’s investigate the insider selling activity at Masco Corp (NYSE:MAS), a manufacturer of products for the home improvement and home construction markets. Director Richard A. Manoogian, who also served as the Chief Executive Officer of Masco from 1985 to 2007, reported selling 150,000 shares last week at prices between $28.52 and $29.14 per share. After the recent selloff, the Director currently owns 964,611 shares. Masco Corp (NYSE:MAS) has had a great year in terms of stock performance thus far, with its shares advancing by more than 32% since the beginning of the year. Just recently, Barclays upgraded the stock to ‘Overweight’ from ‘Equal Weight’ and raised its price target on it to $36 from $30, citing its stronger-than-expected third quarter earnings results. Nevertheless, the stock is currently trading at a trailing P/E ratio of 26.44, compared to the median of 22.65 for the S&P 500. To sum up, even though insiders are known for often selling shares too early, the rich P/E ratio of this stock might suggest limited upside. Iridian Asset Management, founded by David Cohen and Harold Levy, reported ownership of 17.12 million shares in Masco Corp (NYSE:MAS) through its 13F filing for the June quarter.

The insider selling activity at two seemingly “cheap” companies is discussed on the next page.

Let’s now turn our full attention to the insider selling registered at Lincoln National Corporation (NYSE:LNC). Lisa M. Buckingham, Executive Vice President and Chief Human Resources Officer, offloaded 13,000 shares on Friday at a weighted average price of $53.40, trimming her stake to 32,223 shares. The holding company that operates multiple insurance and retirement businesses has seen its stock decline by 5% year-to-date, mainly owing to the August market contraction. However, the stock has rebounded since the beginning of October, having advanced by nearly 15% thus far. Lincoln National Corporation (NYSE:LNC)’s Board recently approved a quarterly dividend of $0.25 per share, which marks an increase of 25% year-over-year. Going back to the recent insider sale, it appears that the executive decided to cash out a portion of her stake after the company disclosed its third quarter earnings report in order to avoid scrutiny. Meanwhile, the stock is trading relatively cheaply at the moment, bearing in mind its trailing P/E of 11.60, so it would be imprudent to stipulate any potential reasons that might explain the aforementioned trade. Cliff Asness’ AQR Capital Management held an ownership stake of 1.94 million shares in Lincoln National Corporation (NYSE:LNC) on June 30.

Finally, we will study a noteworthy insider trade that occurred at Tupperware Brands Corporation (NYSE:TUP) last week. President and Chief Operating Officer Simon C. Hemus offloaded 14,050 shares on Thursday at prices ranging between $58.25 and $58.65 per share. The COO currently holds a stake of exactly 50,000 shares. Although the shares of the multinational direct sales company are nearly 5% in the red year-to-date, their recent rally, which has been fueled by the firm’s promising third quarter financial results, might have propelled the COO to unload a portion of his stake. Tupperware Brands Corporation (NYSE:TUP) posted net sales of $521.0 million, which was up by 7% year-over-year in local currency, but decreased by 11% in U.S dollar terms. Even so, the company’s GAAP net income increased by 12% year-over-year to $36.2 million. It is also worth pointing out that the stock may keep rising in the weeks and months ahead, considering its relatively cheap trailing P/E ratio of 14.41. Joe Huber’s Huber Capital Management owned a stake of 1.38 million shares in Tupperware Brands Corporation (NYSE:TUP) at the end of June.

Disclosure: None