While last week’s dollar volume of insider buying increased significantly week-over-week, the volume of insider selling remained flat relative to the amount of insider selling recorded for the prior week. As most public companies put in place blackout and quiet periods, insider trading activity is generally extremely sluggish during earnings-heavy weeks. However, with 62% of all S&P 500 companies having reported earnings for the first quarter of 2016, one might anticipate both insider buying and selling activity to speed up in the upcoming weeks. Approximately 74% of the companies that have already released their earnings reports reported earnings above analysts’ estimates, while only 55% of those companies reported sales above estimates. Considering these encouraging figures, one might expect insider selling activity to increase given that most insiders usually act as contrarian investors: buy shares when no one want them and sell shares when everyone wants them. Leaving this speculative assumption aside, Insider Monkey scanned most Form 4’s filed with the U.S. SEC on Friday and pinpointed three companies with the highest volume of spontaneous insider selling (insider selling that was not related to pre-arranged trading plans).
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).
The World’s Largest Military Contractor Witnessed Two Executives Sell Shares This Past Week
To begin with, Lockheed Martin Corporation (NYSE:LMT) two executives unload shares last week. Marillyn A. Hewson, Chairman, President and Chief Executive Officer, sold 25,000 shares on Thursday at prices that ranged from $232.57 to $233.83 per share, cutting her overall holding to 68,727 shares. Maryanne R. Lavan, Senior Vice President and General Counsel, discarded 14,720 shares on Thursday at prices that fell between $232.92 and $233.74 per share after exercising the same amount of employee stock options. Ms. Lavan sold an additional 7,000 shares on the same day at prices ranging from $232.87 to $233.44 per share, after which she currently owns a mere 4,122 shares.
The global security and aerospace company has seen its market value gain 190% in the past five years and 22% in the past year alone, so the recent insider selling should not surprise anyone. Lockheed Martin Corporation (NYSE:LMT)’s product sales for the first quarter of 2016 that ended March 27, which accounted for 76% of total net sales, increased 14% year-on-year to $8.94 billion. The increase in the company’s top-line figure was mainly driven by increased product sales of $740 million from the Mission Systems and Training (MST) business segment, mainly due to acquisition of Sikorsky, and $470 million from the Aeronautics segment due to higher sales of the F-35 joint strike fighter. In November 2015, the world’s largest military contractor based on sales completed the $9.0 billion-acquisition of Sikorsky Aircraft Corporation, which manufactures military and commercial helicopters. The company recently raised its full-year 2016 earnings per share guidance to the range of $11.5 to $11.80 from the previous range of $11.45-to-$11.75 despite missing first-quarter earnings estimates.
Lockheed’s shares are currently changing hands at around 16.9-times expected earnings, slightly above the forward P/E multiple of 16.2 for the aerospace and defense segment. Ray Carroll’s Breton Hill Capital owns 2,384 shares of Lockheed Martin Corporation (NYSE:LMT) as of the end of the March quarter.