Financial markets are bombarded with wads of information each day, pushing investors and analysts to filter out information-rich events and ignore usual noise in an effort to separate vital stock-sensitive information from mere news. Similarly, Insider Monkey attempts to determine which insider trading contains viable and useful information, and which does not.
Insider trading watchers have surely noticed that nearly all insider selling activity is conducted under pre-arranged trading plans, but Insider Monkey does not keep tabs on such activity and the reason is simple; corporate insiders often sell shares for a wide range of reasons, including ones that have nothing to do with the stock’s current price or the company’s future prospects. Rather, insiders’ personal liquidity and diversification needs affect the timing of many insider sales, which makes it close to impossible for investors to interpret any given transaction as being informative or not. For that reason, Insider Monkey tries to get rid of ‘routine’ insider trading by ignoring insider transactions conducted under pre-arranged trading plans or transactions related to freshly-exercised stock options. This enables us to narrow down the list of possible information-rich insider trades that may contain predictive power. That said, the following article will lay out a list of three companies that recently registered noteworthy spur-of-the-moment insider selling.
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).
Successful Provider of Professional and Construction Services Sees Informed Insider Sell Shares
Jacobs Engineering Group Inc. (NYSE:JEC) has seen one of the most knowledgeable insiders at the firm offload shares during the past several trading sessions. Non-Executive Chairman Noel G. Watson, former President and CEO of Jacobs Engineering, sold two blocks of 33,333 shares each on Friday and Monday, at a weighted average sale price of $49.28 per share. One of the two blocks was held in a trust fund that currently owns 260,534 shares. Mr. Watson also holds a direct ownership stake of 770,003 shares.
The provider of technical, professional and construction services has seen its market value gain 15% thus far in 2016. In early June, Jacobs Engineering Group Inc. (NYSE:JEC) announced that it had won a contract to provide engineering, procurement and construction management services for the next stage in the development of the Oyu Tolgoi underground copper and gold mine in Mongolia. The Oyu Tolgoi Underground Project is one of the world’s largest mining projects, so Jacobs Engineering will be busy over the next five-to-seven years. The company’s total revenue for the six months that ended April 1 declined by $460.6 million to $5.63 billion, mainly due to reduced pass-through costs included in revenue.
Jacobs Engineering’s shares are currently changing hands at around 14.8-times expected earnings, slightly below the forward P/E multiple of 16.6 for the S&P 500 benchmark. Although the number of asset managers followed by Insider Monkey with equity investments in the company increased to 17 from 16 during the March quarter, those managers trimmed their aggregate exposure to the company, as the overall value of their investments fell by 34% quarter-over-quarter to $59.72 million even though Jacobs Engineering’s shares gained 4% during the quarter. William Harnisch’s Peconic Partners LLC added a 214,720-share stake in Jacobs Engineering Group Inc. (NYSE:JEC) to its portfolio during the March quarter.
The second page of this article will reveal the fresh insider selling registered at two other companies.