In this article, we will take a detailed look at the 11 Overvalued Stocks Insiders are Dumping Now. For a quick overview of such stocks, read our article 5 Overvalued Stocks Insiders are Dumping Now.
Wise investors almost always keep track of corporate insider activity because paying attention to insider sentiment has proven to be a successful strategy several times in the past. For example, when markets were wavering amid the coronavirus crisis, insiders started piling into stocks like crazy in March 2020. In just about 20 days insiders bought $1.19 billion in company shares. Later events proved that they were right. Markets were quick to roar back to new highs driven by stimulus packages and rising consumer spending. Insiders were also selling in November 2021, when the Federal Reserve was getting ready to start cutting interest rates.
Tracking Insider Buying and Selling: Performance Through the Years
But should you always look towards insider sentiment to guess what’s coming next. Are insider bets always right? Some data points show that if you keep paying attention to insider sentiment without incorporating outlier or black swan events, you’d face surprising results. In January 2023, for example, the Wall Street Journal said in a report that insiders were not expecting a rebound because they weren’t buying shares of their own companies. The Journal’s analysis at that time was based on insider buying to selling ratio which ticked up in June 2022 but then started to decline without any major increases. The report at the time also cited Nejat Seyhun, a finance professor at the University of Michigan, who was worried that insiders were not buying despite prices coming down to very low levels. Seyhun said that this indicator was a “warning” about things to come. The WSJ report also said that insider sentiment started to decline in November and December 2021 since in these two months shares of “almost twice as many companies were sold by insiders as were bought.”
But were insiders right? The S&P 500 at the end of January 2023, when insider sentiment was down, was at 3,824.14, while it ended the year at 4,769.83. The AI-led rally that surprised the financial markets was really an outlier event and we are still seeing its effects without any end in sight.
Similarly, in May 2022, insiders were brushing aside recession warnings and piling into stocks. Bloomberg, citing The Washington Service, at the time reported that 1,100 corporate executives and officers had bought their company shares in May through May 23. The S&P 500 closed the month of May at 4,132, while at the end of the year it was at 3,893.
What’s the Insider Sentiment in April 2024?
Currently, the overall Insider Buy/Sell ratio is 0.23, which is quite low and shows that insiders are not bullish on the short-term future. And this isn’t unexpected. Many analysts are expecting a wider market pullback in the short term since they believe the AI-led rally has gone too far and stocks need a breather. They have been questioning the valuations of large-cap tech stocks. Some analysts however believe the AI rally would now broaden to smaller companies.
Is Following Insider Buying and Selling Profitable in 2024?
Let’s take a look at how insider sentiment-focused investing strategies have been performing in the recent past. AdvisorShares Insider Advantage ETF (SURE), which invests in companies “reducing their equity float through buyback programs and insider buying,” is up 10.6% year to date, compared to the 8.5% gain posted by the S&P 500 in the same period. Over the past one year the ETF is up 30%.
Another testament to the effectiveness of keeping an eye on insider trading is the returns posted by Insider Monkey’s monthly newsletter and portfolio that focuses on activist hedge funds, insider trading and stock picks from hedge fund investor newsletters and conferences. The portfolio returned 199.2% between March 2017 and March 12, 2024 and outperformed the S&P 500 ETFs’ 144.9% gain by more than 54 percentage points.
Which Sectors are Seeing Insider Buying and Selling These Days?
Insider Monkey’s analysis of insider buying and selling activity over the past few days shows that insiders are dumping technology stocks in droves. Out of the 83 important insider selling transactions since the start of this month, 26 were related to technology companies. When it comes to insider buying, financials stocks took the lead with 29 insider buys over the past week, followed by healthcare. This was also expected since analysts have been recommending investors to look beyond technology stocks and pile into healthcare, financials and utilities amid low valuations and rate cut expectations.
Luis Louro / shutterstock.com
Methodology
For this article we first used a stock screener to identify stocks with PE ratios over 50. From these stocks we chose 11 stocks that recently saw heavy insider selling activity. To find details of insider selling transactions we used Insider Monkey’s insider trading stock screener. The list is ranked in ascending order of the number of hedge fund investors in these companies. Some top names in the list include Netflix Inc (NASDAQ:NFLX), Salesforce Inc (NYSE:CRM) and Nvidia Corp (NASDAQ:NVDA). But why is it important to keep tabs on hedge fund activity? Hedge funds’ top 10 consensus stock picks outperformed the S&P 500 Index by more than 140 percentage points over the last 10 years (see the details here).
11. MicroStrategy Inc (NYSE:MSTR)
Number of Hedge Fund Investors: 16
Former CEO of MicroStrategy Inc (NYSE:MSTR), Michael Saylor, has been dumping MicroStrategy Inc (NYSE:MSTR) shares in droves over the past few weeks. Saylor, who is now the executive chairman at MicroStrategy Inc (NYSE:MSTR), on April 1 sold 5,000 shares of MicroStrategy Inc (NYSE:MSTR) at $1,630.88 per share. He also sold 1,027 shares of MicroStrategy Inc (NYSE:MSTR) on March 28 for 1,926.78 apiece. Since this transaction through April 2 the stock is down 7.7%.
In addition to MSTR, insiders are also selling Netflix Inc (NASDAQ:NFLX), Salesforce Inc (NYSE:CRM) and Nvidia Corp (NASDAQ:NVDA).
10. Iron Mountain Inc (NYSE:IRM)
Number of Hedge Fund Investors: 20
Information systems and management solutions company Iron Mountain Inc (NYSE:IRM) ranks 10th in our list of the overvalued stocks with latest insider selling activity. Mark Kidd, Iron Mountain Inc’s (NYSE:IRM) Executive Vice President, General Manager of Data Centers & Asset Lifecycle Management, on April 1 sold 4,458 shares of Iron Mountain Inc (NYSE:IRM) at $80.21 per share. Since then the stock has lost about 0.99% in value.
As of the end of the last quarter of 2023, 20 hedge funds out of the 933 funds tracked by Insider Monkey had stakes in Iron Mountain Inc (NYSE:IRM). The biggest stakeholder of Iron Mountain Inc (NYSE:IRM) was Ken Griffin’s Citadel Investment Group which owns a $139 million stake in Iron Mountain Inc (NYSE:IRM).
9. Ares Management Corp (NYSE:ARES)
Number of Hedge Fund Investors: 29
With a PE ratio of 56.53, Ares Management Corp (NYSE:ARES) is one of the stocks that recently saw insider selling. Antony Ressler, Ares Management Corp’s (NYSE:ARES) co-Founder and the Executive Chairman, on March 27 sold 89,072 shares of Ares Management Corp (NYSE:ARES) at $132.86 per share. Since then through April 2 the stock is down 1.82%. Ares Management Corp’s (NYSE:ARES) CEO and co-founder Michael Arougheti also dumped 4,488 shares of Ares Management Corp (NYSE:ARES) on March 25 at $134.01 per share.
In addition to ARES, Netflix Inc (NASDAQ:NFLX), Salesforce Inc (NYSE:CRM) and Nvidia Corp (NASDAQ:NVDA) also saw insider selling recently.
8. Autodesk Inc (NASDAQ:ADSK)
Number of Hedge Fund Investors: 46
Design software company Autodesk Inc (NASDAQ:ADSK) ranks eighth in our list of the overvalued stocks insiders are dumping. On March 27, Autodesk CEO Andrew Anagnost sold 21,053 shares of Autodesk Inc (NASDAQ:ADSK) at $259.99 per share. Since then through April 2 the stock is down 4.7%. Autodesk Inc (NASDAQ:ADSK) CFO Debbie Clifford also dumped 5,553 shares of Autodesk Inc (NASDAQ:ADSK) at $260.01 per share on the same day.
7. Crowdstrike Holdings Inc (NASDAQ:CRWD)
Number of Hedge Fund Investors: 62
Crowdstrike Holdings Inc (NASDAQ:CRWD) shares have gained about 134% over the past one year, with the stock’s PE ratio now touching 871. Insiders were recently seen selling the stock. Burt Podbere, Crowdstrike Holdings Inc’s (NASDAQ:CRWD) CFO, on April 1 sold 64,000 company shares at $316.48 per share. In another insider selling transaction dated March 26, Crowdstrike Holdings Inc’s (NASDAQ:CRWD) Chief Accounting Officer Anurag Saha sold 1,786 shares at $331.52 per share. The stock is down 3.2% since then.
TimesSquare Capital U.S. Mid Cap Growth Strategy stated the following regarding CrowdStrike Holdings, Inc. (NASDAQ:CRWD) in its fourth quarter 2023 investor letter:
“Across the Information Technology universe, we seek companies possessing differentiated capabilities, products, and services. CrowdStrike Holdings, Inc. (NASDAQ:CRWD) provides cloud-delivered protection across endpoints and cloud workloads. Their stock rallied 53% on the heels of solid fiscal third quarter results, with net new annualized recurring revenues accelerating sequentially.”
6. Boston Scientific Corp (NYSE:BSX)
Number of Hedge Fund Investors: 71
John Bradley Sorenson, Boston Scientific Corp’s (NYSE:BSX) senior vice president, manufacturing and supply chain, on April 1 sold 16,351 shares of Boston Scientific Corp (NYSE:BSX) at $69.30 per share. On the same day, Wendy Carruthers, EVP, HR, sold 6,983 shares of Boston Scientific Corp (NYSE:BSX) at $68.42 per share. Since these transactions the stock has slipped 1%.
Baron Health Care Fund stated the following regarding Boston Scientific Corporation (NYSE:BSX) in its fourth quarter 2023 investor letter:
“We added to our position in Boston Scientific Corporation (NYSE:BSX), a global developer, manufacturer, and marketer of medical devices that are used in a broad range of interventional medical specialties. We believe Boston Scientific can grow revenue in the high single digits, driven by differentiated products used to treat atrial fibrillation, such as pulsed field ablation, among others. The company held an Investor Day in September at which management established financial targets for the 2024 to 2026 period calling for an organic sales CAGR of 8% to 10%, 150 basis points of margin expansion, and strong double-digit adjusted EPS growth and improved free-cash-flow conversion. We think this growth profile makes Boston Scientific a compelling name within the large medical device universe.”
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Disclosure. None. 11 Overvalued Stocks Insiders are Dumping Now is originally published on Insider Monkey.