Avoiding “loser” stocks is of equal importance for investors as it is finding high-potential equity investments. Investors usually employ a wide range strategies to identify potential winners depending on their risk aversion and underlying purpose, so we are not going to provide any tips on how to find possible winners. Instead, we will discuss a group of stocks to avoid: stocks with heavy insider selling. Of course, corporate insiders may cash out portions of their holdings for numerous reasons, so one should not interpret each insider sale as a negative sign. However, clusters of insider selling, which involve three or more insiders, can raise red flags on some occasions. If highly-informed individuals running a company are selling shares, it does not make sense for individual investors to turn bullish on the company. Past research shows that companies with heavy insider selling tend to underperform companies witnessing insider buying, so it does make sense to examine insider selling (though investors should be very careful when analyzing this piece of information). Insider Monkey processed a high number of Form 4 filings submitted with the SEC on Tuesday and Wednesday, and pinpointed three companies with noteworthy insider selling.
Through extensive research, we have determined that the due diligence that the investors in our database employ, as well as their long-term focus makes them perfect targets to emulate. However, the results of our analysis have also shown that the small-cap picks of these funds can generate much better returns, with the 15 most popular small-cap stocks beating the market by an average of 95 basis points per month (read more details here).
T. Rowe Price Group Inc. (NASDAQ:TROW) has seen three insiders sell shares since the beginning of 2016, so let’s take a look at the most recent activity. Vice President James A.C. Kennedy, who stepped down from his role as President, Chief Executive Officer and Chairman of the Baltimore investment management firm in 2015, sold 38,992 shares on Monday at prices varying from $73.40 to $73.49 per share, all of which were held by the 2008 Kennedy Family Trust. After the recent sale, the trust fund continues to hold a stake of 838,262 shares. Mr. Kennedy also holds a direct ownership stake of 1.34 million shares, as well as an indirect ownership stake of 445,545 shares held through James A.C. Kennedy LLC.
T. Rowe Price Group Inc. (NASDAQ:TROW) is a financial services holding company that focuses on providing global investment management services to individual and institutional investors in T. Rowe Price mutual funds and other investment portfolios. The company’s net revenues for 2015 totaled $4.20 billion, which increased from $3.98 billion generated in 2014. Investment advisory revenues derived from the T. Rowe Price mutual funds increased $182.1 million or 7.3% year-on-year to approximately $2.7 billion due to higher average mutual fund assets. The company’s 2015 average mutual fund assets increased 7.1% year-on-year to $493.6 billion. Meanwhile, investment advisory revenues earned on other investment portfolios were $1.0 billion, which increased $40.7 million or 4.2% year-on-year. It should be mentioned that T. Rowe Price is a major shareholder of Valeant Pharmaceuticals Intl Inc. (NYSE:VRX), with its mutual funds holding the third-largest stake in the battered company. Therefore, the investment management firm’s mutual funds seem to have lost a great deal of money from their exposure to Valeant. Shares of T. Rowe Price Group are up by 2% since the beginning of the year and trade around 14.8-times expected earnings, versus the forward P/E multiple of 13.0 for the Financials sector. A total of 28 hedge funds from our database had exposure to T. Rowe Price at the end of December 2015. Ken Griffin’s Citadel Advisors had nearly 814,000 shares of T. Rowe Price Group Inc. (NASDAQ:TROW) in its equity portfolio at the end of 2015.