With the proliferation of equity-based compensation at most publicly-traded companies, insider selling metrics have become somewhat useless in recent years. It is relatively simple to understanding why investors keep track of insider buying activity, but it might be quite difficult to recognize the usefulness of tracking insider selling.
Truth be told, there are dozens if not hundreds of reasons why corporate insiders might want to sell shares in their own companies. For example, insiders may want to diversify their holdings, buy a new house or apartment, or even take a vacation. However, as executives and Board members are financially-educated individuals, they would definitely not sell shares after a massive plunge following a disappointing earnings report. On the contrary, corporate insiders are usually acting as contrarian investors by buying low and selling high. So there is good reason to believe that most insiders sell shares when they believe their companies’ valuations are approaching or exceeding their “true” value. Having this in mind, Insider Monkey will now lay out a list of three companies that had their insiders report insider selling with the SEC on Monday.
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).
Leading Title Insurance Provider Registers Notable Insider Selling
FNF Group of Fidelity National Financial Inc. (NYSE:FNF) has registered a massive volume of insider selling thus far in June, but most insider selling was related to freshly-exercised stock options. Even so, there was some spur-of-the-moment insider selling that could be informative to the investment community. William P. Foley II, Chairman of FNF’s boardroom, discarded 153,645 shares on Friday, 69,568 shares on Thursday, and 37,225 shares last Monday at prices varying from $34.30 to $35.17 per share. Following the recent sales, Mr. Foley currently holds a direct ownership stake of 3.92 million shares.
The shares of the largest title insurance provider in the U.S. are up a little less than 1% so far in 2016. FNF Group of Fidelity National Financial Inc. (NYSE:FNF)’s title business is highly correlated with the level of real estate activity, which is in turn impacted by the price of real estate sales, the availability of funds to finance purchases, mortgage interest rates, as well as the underlying strength of the U.S. economy. The company’s revenues for the first quarter of 2016 were $2.05 billion, slightly lower than the $2.06 billion posted in the first quarter of 2015.
FNF shares are currently changing hands at around 13.1-times expected earnings versus the forward PE multiple of 12.8 for the property and casualty insurance sector, which explains the Chairman’s decision to unload some shares to some extent. The title insurance provider received some love from the hedge funds followed by Insider Monkey during the first quarter, as the number of fund from our system with stakes in the company jumped to 44 from 40 quarter-over-quarter. Keith Meister’s Corvex Capital was the equity holder of 19.13 million shares of FNF Group of Fidelity National Financial Inc. (NYSE:FNF) at the end of March.
The next page of this article will reveal fresh insider selling registered at two other companies.