Intensifying Insider Selling Activity at Eli Lilly and Co (LLY), Exxon Mobil Corporation (XOM) and Edwards Lifesciences Corp (EW)

U.S equities’ awful start to 2016 is gradually getting even worse, which could make investors conclude that the ratio of insider selling to insider buying has dropped significantly in recent weeks. However, last week’s volume of both insider selling and insider buying more than tripled relative to the previous week, while the insider selling to buying ratio remained unchanged. So why are insiders still selling nine-times more worth of stock than buying, when U.S equities keep going down? One explanation could be that most companies witnessing high insider selling have seen their share prices appreciate significantly over the past several months, so insiders are taking some profits off the table. Put differently, insiders are mostly selling strong performing stocks and are holding onto bad performing stocks. Even so, the fact that insiders are selling at a very high pace when companies’ valuations are plummeting on a daily basis might serve as cause for concern. Having said that, the following article will discuss noteworthy insider sales registered at three companies recently.

Prior to discussing the insider trading activity, let’s make you familiar with what Insider Monkey does. At Insider Monkey, we track hedge funds’ moves in order to identify actionable patterns and profit from them. But why do we track hedge fund activity? From one point of view we can argue that hedge funds are consistently underperforming when it comes to net returns over the last three years, when compared to the S&P 500. But that doesn’t mean that we should completely neglect their activity. There are various reasons behind the low hedge fund returns. Our research indicated that hedge funds’ long positions actually beat the market. In our back-tests covering the 1999-2012 period, hedge funds’ top small-cap stocks beat the S&P 500 index by double digits annually (read the details here).

The insider selling activity has been relatively high at Eli Lilly and Co (NYSE:LLY) thus far in 2016, but most insider sales were made in connection with freshly-exercised stock options. However, there was some insiders who sold more shares than the amount of exercised options. For instance, Stephen F. Fry, Senior Vice President of Human Resource and Diversity, sold 15,230 shares on Friday at prices that ranged from $74.75 to $75.07 per share, trimming his overall holding to 59,690 shares. He discarded an additional 6,547 shares earlier this month, after having exercised 7,252 restricted stock units.

The shares of the Indianapolis drugmaker are down by nearly 12% so far in 2016, but are up by 5% over the past year. The recent insider selling comes after the company released its financial results for the fourth quarter and full 2015 year. Eli Lilly and Co (NYSE:LLY) reported revenue of $19.96 billion for 2015, which marked an increase of 2% year-over-year. The company’s net income for the year also grew by 1% to $2.41 billion. Numerous analysts and financial hubs have great expectations for the company’s future performance, citing its strong product pipeline. However, insiders are widely-known for their contrarian approach to investing, which partly explains the recent insider selling. In the meantime, the stock trades at a forward P/E multiple of 18.58, which is above the average of 16.3 for the drug retail industry. The drugmaker’s management anticipates worldwide revenue in the range of $20.2 billion to $20.7 billion for 2016, which doesn’t suggest that the company is facing grim prospects in the near future. Donald Chiboucis’ Columbus Circle Investors lifted its holding in Eli Lilly and Co (NYSE:LLY) by approximately 348,000 shares during the fourth quarter to 1.60 million shares.

Let’s head to the next two pages of this article, which discuss the insider selling witnessed at Exxon Mobil Corporation (NYSE:XOM) and Edwards Lifesciences Corp (NYSE:EW).

Exxon Mobil Corporation (NYSE:XOM) saw three different executives sell shares last week, which is not surprising considering the company’s stock performance in 2016 and the gloomy prospects for the oil industry. To start with, James M. Spellings Jr., Vice President and General Tax Counsel, unloaded 11,924 shares on Friday at $78.90 apiece and now owns 186,750 shares. Vice President Alan J. Kelly discarded 9,159 shares on the same day at prices that ranged from $79.23 to $79.25 per share, cutting his stake to 255,020 shares. Vice President Dennis G. Wascom offloaded 2,600 shares on Wednesday and 2,600 shares on Thursday at a weighted average price of $78.90 and currently holds a 164,526-share stake.

The shares of the largest publicly-held oil company are down by 11% over the past 12 months, after having gained 4% thus far in 2016. Exxon recently released its financial results for the fourth quarter of 2015, which compelled Credit Suisse’s analysts to raise their price target on the stock to $73 from $68 (the ‘Underperform’ rating remained unchanged however). Exxon Mobil reported earnings of $16.15 billion for the full 2015 year, less than half of the $32.52 billion reported for 2014. The company also paid out $12.09 billion in dividends last year, which yields a payout ratio of almost 75%. It is important to note that Exxon has increased its annual dividend payment for 33 straight years, so it is highly likely that the company’s payout ratio will increase above 100% this year should the depressed conditions in the oil market stick around. In fact, analysts anticipate that Exxon will generate $10.5 billion in earnings for 2016, so the company’s current dividend does not seem to be sustainable for a long period of time. A total of 61 hedge funds from our system were invested in Exxon Mobil at the end of the September quarter, amassing a mere 1% of the company’s total shares. Ken Fisher’s Fisher Asset Management cut its stake in Exxon Mobil Corporation (NYSE:XOM) by nearly 88,000 shares during the final quarter of 2015, to 5.39 million shares.

Insider buying at Edwards Lifesciences Corp (NYSE:EW) has been nonexistent since mid-2013, but the insider selling activity has been gaining steam lately. Director Wesley W. von Schack sold 8,106 shares on Thursday at prices varying from $83.18 to $83.33 per share, all of which were held through the von Schack Revocable Trust. After the recent sale, the trust fund holds ownership of 40,130 shares. The Director also holds a direct ownership stake of 3,652 shares. Furthermore, Director Barbara J. McNeil unloaded a 4,000-share block on the same day, which was held by the Barbara J. McNeil Trust U/A DTD. The Director owns a direct ownership stake of 54,672 shares, while the trust fund currently owns 46,454 shares. The recent insider selling comes after the release of the company’s fourth-quarter earnings report.

The leader in the science of heart valves and hemodynamic monitoring reported net sales of $2.5 billion for 2015, up by 7.4% year-over-year. Its non-GAAP earnings per share increased by 30.9% year-over-year to $2.29. After the release of the latest earnings report, several financial hubs updated their ratings and target prices on the stock. For instance, BMO Capital Markets reiterated its ‘Outperform’ rating on Edwards Lifesciences and lifted its price target to $93 from $91. Let’s not forget to mention that the stock has gained 18% over the past 12-month period, so the aforementioned insiders might have sold shares as a precautionary move in light of the increased worries of a slowing global and U.S economies. David Harding’s Winton Capital Management cut its stake in Edwards Lifesciences Corp (NYSE:EW) by almost 697,000 shares during the October-to-December period, ending the quarter with 856,404 shares.

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