Southwest Gas Corporation (SWX), Helmerich & Payne Inc. (HP) and Sun Hydraulics Corporation (SNHY) Witness Some Profit-Taking on the Part of Insiders

As a general rule, stock market watchers mostly perceive insider buying as a bullish signal and insider selling as a bearish one. But this type of thinking is way too simplistic at this point in time, especially considering the increased usage of equity-based compensation at most publicly-traded companies. It is often believed that insider selling can serve as a tip-off that insiders believe their companies will underperform in the forthcoming future, but that’s not true on all occasions. Corporate insiders can unload shares for a wide range of reasons, some of which may not be necessarily related to their companies’ future prospects. Nonetheless, if I were investing my hard-earned money into a company’s stock, I would definitely be concerned by massive insider selling at that company. In fact, past research provides evidence that companies with insider selling tend to underperform companies with insider buying, so it does pay off to keep track of insider selling activity. For that reason, the following article will discuss several noteworthy insider sales recently witnessed at three companies.

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Southwest Gas Corporation (NYSE:SWX) registered some noteworthy insider sales this March, so let’s take a brief look at the most recent insider selling activity. To begin with, Director Jeffrey W. Shaw, who stepped down from his role as Chief Executive Officer in 2015 and President in 2014, discarded 21,717 shares on Tuesday at prices ranging from $66.15 to $66.84 per share. The Form 4 filing that disclosed the aforementioned sale also shows that Mr. Shaw offered 1,200 shares as a bona-fide gift on the same day. Following the recent transactions, the former CEO of Southwest Gas continues to own 56,383 shares. Chief Executive Officer and President John P. Hester sold 3,000 shares last Wednesday at prices between $65.00 and $65.18 per share, trimming his direct ownership to 52,760 shares.

Southwest Gas Corporation (NYSE:SWX) primarily operates in two business areas: natural gas operations and construction services. The first line of operations involves the purchase, distribution, and transportation of natural gas in Arizona, Nevada, and California. The company also owns 96.6% of Centuri Construction Group Inc., which is an underground piping contractor that offers trenching and installation, replacement, and maintenance services for energy distribution systems and industrial construction solutions. Although the company’s natural gas operations accounted for only 59% of total operating revenue in 2015, this segment accounted for an average of 83% of consolidated net income over the past three years. The contribution to consolidated net income from natural gas operations dropped $5.2 million during 2015 to $111.63 million. Meanwhile, the contribution to net income from construction services for 2015 grew $2.4 million year-on-year to $26.69 million. It should be noted that Southwest Gas Corporation’s 2015 construction revenues increased to $1.01 billion from $739.62 million in 2014, primarily due to the acquisition of the Link-Line group of companies. Shares of Southwest Gas have advanced 20% year-to-date, which might have shaped some exist points for insiders. The stock is priced around 19.5-times expected earnings, versus the forward P/E multiple of 20.8 for the Gas Utilities sector (however, the company is not a pure-play gas utility company). There were 12 hedge funds from our database with long positions in the company, which aggregately stockpiled almost 5% of its outstanding common stock. Adage Capital Management, founded by Phill Gross and Robert Atchinson, had 550,000 shares of Southwest Gas Corporation (NYSE:SWX) in its portfolio at the end of 2015.

The next two pages of this article examines the insider selling reported by several investors at Helmerich & Payne Inc. (NYSE:HP) and Sun Hydraulics Corporation (NASDAQ:SNHY).

Helmerich & Payne Inc. (NYSE:HP) is another energy-related company that saw some insiders unload shares in recent weeks. Juan Pablo Tardio, Chief Financial Officer and Vice President, discarded 12,497 shares on Wednesday at prices between $58.10 and $58.49 per share, cutting his stake to 23,468 shares. Moreover, Chairman Hans Helmerich, former President and Chief Executive of the land drilling company, sold 40,000 shares last Monday at prices ranging from $60.51 to $61.22 per share, all of which were held by a family trust that currently owns 1.57 million shares. Mr. Helmerich exercised 50,000 employee stock options on the same day, with 32,675 shares being sold to cover the exercise price or tax liabilities associated with the freshly-exercised stock options. After these transactions, the Chairman holds a direct ownership stake of 867,204 shares.

The contract drilling company has seen its shares advance by 8% since the beginning of 2016, which might have prompted some insiders to cash out portions of their holdings given the high uncertainty around the crude oil industry. The company’s U.S. Land segment revenues, which accounted for 76% of total operating revenues in the first quarter of fiscal 2016 that ended December 31, were $318.1 million for the quarter, decreasing from $890.0 million reported for the first quarter of fiscal 2015. What’s more, Helmerich & Payne’s U.S. land rig utilization decreased to 39% for the first quarter of fiscal 2016, as compared to a whopping 89% in the same quarter of the prior year. The company’s rig utilization rate is anticipated to decrease in the second quarter as well, mainly due to rigs idled in the first quarter that are anticipated to remain idle and other rigs that recently became idle. As of the end of 2015, only 131 rigs of the company’s 345 existing rigs in the U.S. Land segment were contracted. A total of 26 hedge funds monitored by our team were invested in HP at the end of December, amassing 5.30% of the company’s shares. Royce & Associates, founded by Chuck Royce, owns nearly 956,000 shares of Helmerich & Payne Inc. (NYSE:HP) as of December 31.

The insider selling activity at Sun Hydraulics Corporation (NASDAQ:SNHY) has been intensifying in recent months, whereas insider buying has been nonexistent in the past few years. President and Chief Executive Officer Allen J. Carlson offloaded 14,466 shares on Tuesday at prices varying from $33.50 to $33.53 per share, which decreased his exposure to Sun Hydraulics to 36,247 shares.

Sun Hydraulics is a designer and manufacturer of screw-in hydraulic cartridge valves and manifolds used to control force, speed and motion in fluid power systems. The company’s net sales for 2015 totaled $200.73 million, down from $227.67 million in 2014. Similarly, net income decreased to $33.14 million from $43.78 million reported for 2014. According to fresh statistics revealed by the National Fluid Power Association, the United States index of shipments of hydraulic products dropped by a massive 16% in 2015, after increasing 6% in 2014. This decline is partly reflected in the company’s financial performance for both 2015 and 2014. Sun Hydraulics Corporation’s 2015 sales to the Americas region declined 13%, while the demand in Asia/Pacific declined 9% year-on-year and demand in Europe dropped at a higher rate of 11%. The shares of Sun Hydraulics are currently trading at a forward P/E ratio of 22.7, which is significantly below the ratio of 16.8 for the Industrial Machinery sector. A number of 10 money managers monitored by our team had long positions in the company at the end of 2015, stockpiling 13.30% of its total number of shares. Shares of Sun Hydraulics are up 5% so far in 2016, but have declined by 17% in the past 12 months. Jim Simons’ Renaissance Technologies was the owner of 449,400 shares of Sun Hydraulics Corporation (NASDAQ:SNHY) at the end of December 2015.

Disclosure: None