Most insider trading watchers believe that insider buying is much more informative than insider selling, and rightly so. Officers and directors can sell shares for a wide variety of reasons such as portfolio diversification or tax obligations, which makes it particularly hard to accurately interpret insider selling. Moreover, as most officers receive stock options or other related instruments as part of their compensation packages, they usually sell two-to-three times more shares than they buy. Nonetheless, heavy insider selling, particularly in the form of clusters of insider selling, can raise red flags on some occasions. Although insider selling should not necessarily be interpreted as a bearish signal, this kind of activity can suggest that insiders believe their companies are approaching or even exceeding their “fair” market value. Insider Monkey processed numerous Form 4 filings disclosing insider selling submitted with the SEC on Tuesday and pinpointed three companies with notable insider selling.
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Genie Energy’s Founder Sells Massive Block of Shares
Let’s kick off our discussion by having a look at the insider selling witnessed at Genie Energy Ltd (NYSE:GNE). According to a fresh Form 4 filing, Chairman and Chief Executive Officer Howard S. Jonas, founder of Genie Energy, sold 263,713 Class B shares on Friday at a sale price of $6.32 per share. After the recent private sale of shares, Mr. Jonas continues to own 935,703 Class B shares and $1.57 million Class A shares. The founder of Genie Energy also holds an indirect ownership stake of 4.13 million Class B shares, which are held by the Howard S. Jonas 2014 Annuity Trust.
Genie Energy Ltd (NYSE:GNE) primarily consists of two businesses: Genie Retail Energy (GRE), which resells electricity and natural gas; and Genie Oil and Gas Inc. (GOGAS), an oil and gas exploration company whose projects include an oil and gas exploration project in Israel operated by subsidiary Afek Oil and Gas. The company recently received an extension of its license from the Israeli Ministry of Energy and Water through April 2017, but the news were accompanied by a sharp decline in the company’s share price. The main issue was that Afek finalized a well flow test on one of its completed wells (Ness 3), which did not find previously-anticipated levels of liquids hydrocarbons and “could not confirm the current commercial viability of the resource”.
The company’s Board of Directors recently decided to resume the payment of quarterly dividends on its Class A and Class B common stock, and paid a dividend of $0.06 per share for the fourth quarter of 2015. There were six hedge funds tracked by Insider Monkey with long positions in Genie Energy at the end of December, which amassed 6% of the company’s shares. Shares of Genie Energy are down 25% year-to-date. Irving Kahn’s Kahn Brothers owned 437,413 shares of Genie Energy Ltd (NYSE:GNE) at the end of 2015.
Drive-thru Chain Has Board Member Sell Shares
Sonic Corporation (NASDAQ:SONC) had one member of its Board sell big in the past several days. Director Frank E. Richardson III sold 20,000 shares on Friday, 30,000 shares on Monday and 1,100 shares on Tuesday at prices that ranged from $35.00 to $35.14 per share. Mr. Richardson currently holds 1.32 million shares, and an indirect ownership stake of 16,484 shares through trust funds for his children.
The shares of the Oklahoma-based fast food chain have gained 211% in the past five years, 68% in the past two years, and 14% in the past year alone. Therefore, Mr. Richardson, who has been on Sonic’s Board since 1991, might have decided to take some profits off the table and diversify his holdings. Despite facing tough competition from giants such as McDonald’s Corporation (NYSE:MCD), the drive-thru chain has managed to grow at a high pace in the last couple of years years. Sonic’s financial results for the second quarter of fiscal 2016 that ended February 29 beat analysts’ top- and bottom-line estimates, serving as a strong catalyst for the stock. The company’s second-quarter net income per diluted share grew 57% year-on-year to $0.22, while system same-store sales increased 6.5% year-on-year.
The shares of the drive-thru chain are changing hands at around 22.6-times expected earnings, below the forward P/E multiple of 25.1 for the restaurant industry, but significantly above the average of 18.8 for the Nasdaq 100 Index. The smart money sentiment towards Sonic declined during the December quarter, with the number of funds invested in the company shrinking to 23 from 30 quarter-quarter. Eric Bannasch’s Cadian Capital acquired a new stake of nearly 455,000 shares in Sonic Corporation (NASDAQ:SONC) during the final quarter of 2015.
BlackRock Witnesses Some Insider Selling
BlackRock Inc. (NYSE:BLK) is another company that registered some insider selling recently. Jeff A. Smith, Senior Managing Director of BlackRock and global head of Human Resources, sold 2,650 shares on Friday at prices varying from $353.59 to $357.54 per share, cutting his stake to 25,331 shares. There has been much more insider selling activity at the company in recent months, but most of that activity was related to freshly-exercised stock options.
The investment management firm, with AUM of around $4.65 trillion, has seen its market capitalization gain 7% since the beginning of 2016, successfully recouping the loss in market value incurred at the end of 2015 and early 2016. Just recently, William Katz, an analyst at Citigroup, upgraded BlackRock to ‘Buy’ from ‘Neutral” and increased his price target by 20% to $410, which yields an upside of at least 12%. The Citigroup analyst believes that BlackRock will benefit from the new fiduciary standard rules recently presented by the Department of Labor (DOL), as they are anticipated to drive up demand for low-cost index-tracking exchange traded funds (ETFs). The DOL’s final fiduciary rule and related exemptions are designed to protect investors from receiving conflicted advice. Moreover, William Katz anticipates a “significant runway” for BlackRock’s iShares, which is the leading ETF provider in the world, while the company’s digital wealth management platform FutureAdvisor and BlackRock Solutions (BRS) business can be expanded significantly.
BlackRock shares currently trade at a forward P/E ratio of 16.0, slightly above the ratio of 13.1 for the Financial sector. There were 34 top money managers from our database invested in the investment management firm at the end of 2015. Ken Fisher’s Fisher Asset Management cut its stake in BlackRock Inc. (NYSE:BLK) by 6% during the March quarter to 75,737 shares.