Does it make sense to track insider selling activity? It depends! (One of the most commonly used answers in economics). The increased usage of stock-based equity compensation has indeed distorted insider trading data, which makes it particularly cumbersome to accurately interpret insider selling. Truth be told, directors and executives can sell shares for numerous reasons unrelated to their companies’ current developments or future prospects, and it’s nearly impossible to find out what stands behind each insider sale. However, clusters of insider selling may serve as a possible forward-looking indicator that certain companies’ shares do not have much room to run. Put it differently, heavy insider selling can be interpreted as a sign that companies are approaching or even exceeding their “true” market value. Having this in mind, the following article will discuss fresh insider selling witnessed at three companies, as well as briefly review the performance of those companies.
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).
Tobacco Giant PMI Had Chairman Sell Shares This Week
Philip Morris International Inc. (NYSE:PM) had one of its top-tier insiders sell a sizable block of shares earlier this week. Chairman of the Board, Louis C. Camilleri, discarded 33,340 shares on Monday at prices varying from $96.93 to $97.03 per share, trimming his overall holding to 800,157 shares. Mr. Camilleri sold an additional 80,000 shares in early February at a weighted average price of $88.20.
The shares of the tobacco giant have gained 10% since the beginning of 2016 and are up 17% in the past 12 months. The company’s total shipment volume for cigarettes and other tobacco products (OTP) continued to decline in the first quarter of this year, dropping 1.4% year-on-year. However, PMI’s cigarette shipment volume of its most popular brands such as Marlboro, L&M and Parliament increased year-on-year during the quarter. Philip Morris International Inc. (NYSE:PM) manufactures and markets cigarettes and other tobacco products in markets outside the United States, so the strong U.S. dollar has put significant weight on the company’s financials in the past several quarters. However, with the green buck depreciating against major global currencies thus far in 2016, PMI recently increased its full-year 2016 EPS guidance to the range of $4.40-to-$4.50 from the previous guidance of $4.25-to-$4.35 per share.
PMI boasts an attractive dividend yield of 4.20%, significantly above the yields offered by other industry peers. However, the dividend payout ratio for the first quarter reached almost 99%, which does look too promising for income-seeking investors. Assuming that PMI’s EPS for 2016 reaches the lower end of the aforementioned range, the payout would equal approximately 93%. The stock is priced at 20.0-times expected earnings, faintly below the forward P/E ratio of 20.5 for the Tobacco industry. Ray Carroll’s Breton Hill Capital reported owning 67,797 shares of Philip Morris International Inc. (NYSE:PM) through its 13F for the March quarter.