Insider Trading 12 June 2015: Insiders Are Often Wrong About the Future Prospects of their Stock and Sometimes Disastrously So

by Asif Suria

Welcome to the five year anniversary edition of Insider Weekends. Following this strategy over the last five years has been a very interesting experience. While the S&P 500 has enjoyed gains of nearly 88% over the last five years, insiders as a group (excluding directors and 10% owners) have continued to outperform the broader market as seen in numerous academic studies as well as a back-testing project we have undertaken over the last two years.

Beyond the headline numbers, any follower of this strategy would have also realized that insiders are often wrong about the future prospects of their stock and sometimes disastrously so. Attempting to pick the right companies or insiders to follow makes this strategy both interesting and challenging. The key benefit I have found from using this strategy for my personal portfolio is that it often lets me discover companies that I would not have discovered otherwise. This strategy becomes my first filter for further qualitative research. Without further ado, given below is edition 260 of Insider Weekends.

Insider buying more than doubled last week with insiders buying $106.45 million of stock compared to $45.8 million in the week prior. Selling also increased with insiders selling $2.37 billion of stock last week compared to $1.08 billion in the week prior.

Sell/Buy Ratio: The insider Sell/Buy ratio is calculated by dividing the total insider sales in a given week by total insider purchases that week. The adjusted ratio for last week dropped to 22.26. In other words, insiders sold more than 22 times as much stock as they purchased. The Sell/Buy ratio this week compares favorably with the prior week, when the ratio stood at 23.59. We are calculating an adjusted ratio by removing transactions by funds and companies and trying as best as possible only to retain information about insiders and 10% owners who are not funds or companies.

Insider Sell Buy Ratio June 12, 2015

Note: As mentioned in the first post in this series, certain industries have their preferred metrics such as same store sales for retailers, funds from operations (FFO) for REITs and revenue per available room (RevPAR) for hotels that provide a better basis for comparison than simple valuation metrics. However metrics like Price/Earnings, Price/Sales and Enterprise Value/EBITDA included below should provide a good starting point for analyzing the majority of stocks.

Notable Insider Buys:

Beyond the top 5 insider purchases below, there were other interesting purchases that did not make the list either because they were purchases by 10% owners or were smaller purchases. Some of them include director and 10% owner Mark Rachesky adding to his position in diesel engine and truck manufacturer Navistar International (NAV), 10% owner Bruce Berkowitz of Fairholme Capital adding to his stake in Sears Holdings (SHLD), a $1 million purchase by the President of teen retailer Abercrombie & Fitch (ANF), the CEO of heavy construction services company Tutor Perini (TPC) buying shares for a second week in a row and a cluster of purchasesby the insiders of Sears Hometown and Outlet Stores (SHOS).

1. Ferrellgas Partners LP (FGP): $23.15

Shares of this propane distribution company were acquired by 2 insiders:

• Director James E. Ferrell acquired 405,000 shares, paying $23.00 per share for a total amount of $9.32 million.
• Director Pamela A. Breuckmann acquired 8,100 shares, paying $23.00 per share for a total amount of $186,300. These shares were purchased indirectly through a trust.

You can view the list of recent insider transactions for Ferrellgas Partners LP here.

2. Kinder Morgan, Inc. (KMI): $38.92

Executive Chairman Richard D. Kinder acquired 200,000 shares of this oil & gas pipeline company, paying $39.49 per share for a total amount of $7.89 million. Mr. Kinder increased his stake by 0.09% to 234,012,353 shares with this purchase.

You can view the list of recent insider transactions for Kinder Morgan, Inc. here.

3. American Assets Trust, Inc. (AAT): $39.59

Executive Chairman Ernest S. Rady acquired 100,000 shares of this diversified REIT, paying $39.40 per share for a total amount of $3.94 million. These shares were purchased indirectly through a trust.

You can view the list of recent insider transactions for American Assets Trust, Inc. here.

4. Prospect Capital Corporation (PSEC): $7.58

Shares of this business development company were acquired by 3 insiders:

• Chief Executive Officer John F. Barry acquired 271,060 shares, paying $7.44 per share for a total amount of $2.02 million. Mr. Barry increased his stake by 5.24% to 5,440,786 shares with this purchase.
• CFO, CCO, Treasury & Secretary Brian H. Oswald acquired 65,000 shares, paying $7.27 per share for a total amount of $472,550. Mr. Oswald increased his stake by 17.33% to 440,000 shares with this purchase.
• Chief Operating Officer M. Grier Eliasek acquired 20,000 shares, paying $7.23 per share for a total amount of $144,600. Mr. Eliasek increased his stake by 6.62% to 322,196 shares with this purchase.

You can view the list of recent insider transactions for Prospect Capital Corporation here.

5. Kratos Defense & Security Solutions, Inc. (KTOS): $6.57

Director Bandel L. Carano acquired 300,000 shares of this security & protection services provider, paying $6.02 per share for a total amount of $1.81 million. Mr. Carano increased his stake by 117647.06% to 300,255 shares with this purchase.

You can view the list of recent insider transactions for Kratos Defense & Security Solutions, Inc. here.

You can view the full list of purchases from this Insider Buying page.

Notable Insider Sales:

1. On Assignment Inc. (ASGN): $39.01

Shares of this professional staffing firm were sold by 2 insiders:

• Director Edwin A. Sheridan sold 212,500 shares for $38.56, generating $8.19 million from the sale.
• Director Arshad Matin sold 1,500 shares for $38.99, generating $58,490 from the sale.

You can view the list of recent insider transactions for On Assignment Inc. here.

2. Twitter, Inc. (TWTR): $35.9

Shares of Twitter were sold by 2 insiders:

• Director Evan Clark Williams sold 372,000 shares for $35.91, generating $13.36 million from the sale. 349,680 of these shares were sold indirectly through various trusts.
• Senior VP, Engineering Alexander Roetter sold 6,587 shares for $37.00, generating $243,706 from the sale.

You can view the list of recent insider transactions for Twitter, Inc. here.

Voluntary Disclosure: I hold a long position in Twitter.

3. Nimble Storage, Inc. (NMBL): $28.65

Shares of this data storage products company were sold by 3 insiders:

• VP Engineering Varun Mehta sold 423,078 shares for $29.00, generating $12.27 million from the sale.
• Chief Technology Officer Umesh Maheshwari sold 16,000 shares for $29.26, generating $468,083 from the sale. 4,000 of these shares were sold indirectly through a trust.
• Director Jerry M. Kennelly sold 2,662 shares for $29.50, generating $78,529 from the sale.

You can view the list of recent insider transactions for Nimble Storage, Inc. here.

4. Heartland Express, Inc. (HTLD): $20.98

Director Larry J. Gordon sold 200,000 shares of this trucking company for $21.24, generating $4.25 million from the sale.

You can view the list of recent insider transactions for Heartland Express, Inc. here.

5. Graham Holdings Company Common (GHC): $1,068.7

CEO and COB Donald Graham sold 11,598 shares of this diversified education and media company for $1,070.78, generating $12.42 million from the sale. These shares were sold indirectly through various trusts.

You can view the list of recent insider transactions for Graham Holdings Company Common here.

You can view the full list of sales from this Insider Sales page.

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