Are High Profile Executives Pointing to Grim Prospects at These 3 Companies? eBay Inc. (EBAY) Among Them

Extensive research has provided evidence that insider purchases and sales serve as accurate predictors of future stock performance. It is true that insider purchases are more straightforward to interpret than insider sales, which is one of the key reasons why most investors tend to pay more attention to the insider buying activity. However, one should not overlook the heavy insider selling at some companies, which may accurately point to gloomy future prospects at those companies on some occasions. The fact that insiders offload shares for a variety of reasons unrelated to their companies’ future outlook makes insider selling exceedingly complex to interpret. Hence, one should not perceive each insider sale as a bearish sign right away. Although some strong insider selling at a company might raise red flags, investors should closely investigate the company so as to figure out whether insiders’ moves might have been triggered by any firm-specific news or developments. Having this in mind, the following article will discuss the insider selling activity at three companies and the potential reasons that might have caused insiders to sell stock at this point in time.

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Prior to discussing the insider trading activity, let’s make you familiar with what Insider Monkey does besides providing high-quality articles. We track hedge funds and prominent investors because our research has shown that historically their stock picks delivered superior risk-adjusted returns. This is especially true in the small-cap space. The 50 most popular large-cap stocks among hedge funds had a monthly alpha of about 6 basis points per month between 1999 and 2012; however the 15 most popular small-cap stocks delivered a monthly alpha of 80 basis points during the same period. This means investors would have generated 10 percentage points of alpha per year simply by imitating hedge funds’ top 15 small-cap ideas. We have been tracking the performance of these stocks since the end of August 2012 in real time and these stocks beat the market by 53 percentage points (102% return vs. S&P 500’s 48.7% gain) over the last three years (see more details here).

Let’s begin our so-called investigation by looking into the insider selling activity at eBay Inc. (NASDAQ:EBAY). Senior Vice President and Chief Technology Officer Stephen Fisher sold 78,775 shares on Monday at prices ranging from $27.89 to $27.91, after 38,714 stock options vested on the same day. Therefore, the net sale of the executive adds up to 40,061 shares, while his overall holding was reduced to 15,051 shares. The shares of the tech company have skyrocketed by 17% since it disclosed its third-quarter earnings report on October 21, which might suggest that the executive has decided to cash out a portion of his stake on the basis of strong stock performance. eBay Inc. (NASDAQ:EBAY) has been performing quite strongly since the spin-off of Paypal Holdings Inc. (NASDAQ:PYPL) despite being caught in the broader market sell-off. The tech company posted non-GAAP net income from continuing operations of $529 million on revenue of $2.1 billion for the last quarter. Ken Fisher’s Fisher Asset Management reduced its stake in eBay Inc. (NASDAQ:EBAY) by nearly 670,000 shares during the September quarter, remaining with 376,617 shares.

The second page of the article covers the insider sales registered at other two well-known companies. 

Moving on to the next potential short-selling opportunity, Discover Financial Services (NYSE:DFS) has seen two key executives sell stock over the past week or so. Executive Vice President and Chief Financial Officer Mark Graf reported selling 20,000 shares on Monday at a weighted average price of $56.48, trimming his stake to 131,791 shares. James V. Panzarino, Executive Vice President and President of Credit & Card Operations, unloaded 20,000 shares on Thursday at prices between $55.91 and $55.95. After the recent sale, the executive currently holds a stake of 77,288 shares. The shares of the credit-card issuer are down by 14% year-to-date despite advancing 8% since the beginning of the fourth quarter. Discover Financial Services (NYSE:DFS)’s third-quarter net profit beat analysts’ expectations, thanks to its strong credit performance and share buybacks. The company posted net income of $612 million or $1.38 per share, down from $644 million or $1.37 per share reported a year ago. Doug Silverman and Alexander Klabin’s Senator Investment Group added a 3.25 million-share position in Discover Financial Services (NYSE:DFS) during the second quarter.

Stanley Black & Decker Inc. (NYSE:SWK) is another company that has seen strong insider trading activity on the sell side lately. Chief Executive Officer and Chairman John F. Lundgren offloaded 60,000 shares on Monday at a price of $105.45 per share and currently holds 531,977 shares. Donald Allan, who has served as Chief Financial Officer since January 2009 and Senior Vice President since March 2010, disposed of 16,286 shares on Tuesday for $105.88 each, reducing his overall holding to 102,501 shares. The provider of tools and storage, commercial electronic security and engineered fastening systems has seen its stock advance slightly over 10% since the beginning of the year. The company’s investors and watchers have regained confidence in the stock after Stanley Black & Decker disclosed its third-quarter financial results. It is also worth pointing out that the U.S. Commerce Department has recently disclosed that housing starts increased by 6.5% in September to a seasonally-adjusted annual rate of 1.21 million homes. Thus, Stanley Black & Decker Inc. (NYSE:SWK) is anticipated to have a great fourth quarter, so it would be imprudent to claim that the aforementioned executives fear a grim outlook for the company. Ken Griffin’s Citadel Investment Group owned 2.41 million shares of Stanley Black & Decker Inc. (NYSE:SWK) as of June 30.

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