Are These Insiders’ Sales Well-Timed? Only Time Will Tell!

Most stock market participants diagnose insider buying as a sign of management’s confidence in a company’s future prospects, and is being perceived as a bullish sign. On the other hand, insider selling is taken as a bearish indicator. However, this simplistic line of thought may not be entirely accurate at this point in time. It is widely known that insiders may sell shares for a variety of reasons that have nothing to do with their companies’ prospects or other firm-specific developments. Even so, this type of activity can offer great insights on how insiders feel about their companies’ stock performance. For instance, an insider may decide to unload shares because he/she does not expect any developments at his/her company that can potentialy lead to stock price appreciation. Having this in mind, let’s proceed with the discussion of the insider selling activity registered at three companies pinpointed by Insider Monkey.

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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. At Insider Monkey, we track hedge funds’ moves in order to identify actionable patterns and profit from them. Our research has shown that hedge funds’ large-cap stock picks historically underperformed the S&P 500 Total Return Index by an average of seven basis points per month between 1999 and 2012. On the other hand, the 15 most popular small-cap stocks among hedge funds outperformed the S&P 500 Index by an average of 95 basis points per month (read more details here). Since the official launch of our small-cap strategy in August 2012, it has performed just as predicted, returning 102% and beating the market by more than 53 percentage points. We believe the data is clear: investors will be better off by focusing on small-cap stocks utilizing hedge fund expertise (while avoiding their high fees at the same time) rather than large-cap stocks.

To start with, Greenbrier Companies Inc. (NYSE:GBX) has seen two of its top executives offload their holdings this week. President and Chief Executive Officer William A. Furman reported selling 282,706 shares on Friday and 60,902 shares on Monday at prices ranging from $35.18-to-$37.45 per share, cutting down his overall holdings to roughly 1.35 million shares. William G. Glenn, Senior Vice President-Strategic Planning and Chief Commercial Officer since June 2009, sold 19,000 shares on Monday at a weighted average price of $36.10 and currently holds a mere 301 shares. The supplier of transportation equipment and services to the railroad industry has seen its shares drop 34% since the beginning of the year. It might be the case that these executives are unloading their holdings for personal reasons unrelated to the company’s prospects, but the timing of their sales does not represent a motive for optimism. Greenbrier Companies Inc. (NYSE:GBX) has a trailing P/E ratio of only 5.95, which is significantly lower than the 23.41 P/E of the S&P 500. The company also lost some of its appeal among the hedge funds monitored by our team during the second quarter, as the number of top money managers invested in the stock dropped to 22 from 27 quarter-on-quarter. Shashin Shah’s Think Investments acquired 300,000 put options on Greenbrier Companies Inc. (NYSE:GBX) during the June quarter.

The next page of the article discloses the insider sales registered at Oceaneering International (NYSE:OII) and Royal Caribbean Cruises Ltd (NYSE:RCL).

Let’s not refocus our discussion on the insider selling activity at Oceaneering International (NYSE:OII). Chairman John R. Huff offloaded a whopping 200,000-share block on Tuesday at prices between $44.00 and $44.45 per share. After the recent sizable sell-off, the Chairman owns 78,196 shares. The shares of the oilfield provider of engineered services and products to the offshore oil and gas industry have lost 24% since the beginning of the year, which is not surprising given the challenging environment within this industry. At the end of October, the company reported third-quarter earnings per share (EPS) of $0.70 on revenue of $743.61 million, compared to EPS of $1.16 on revenue of $973.09 million reported in the same quarter a year ago. Furthermore, analysts anticipate even weaker financial figures in the upcoming quarters, which might somewhat explain the low valuation of the company at the moment. As of the end of the second quarter, 27 hedge funds observed by Insider Monkey have positions in the struggling company, which aggregately accumulate 4.20% of its outstanding shares. Ken Fisher’s Fisher Asset Management reported owning 689,503 shares in Oceaneering International (NYSE:OII) via the latest round of 13F filings.

We will wrap up our discussion with the investigation of the insider selling activity at Royal Caribbean Cruises Ltd (NYSE:RCL). Director Eyal M. Ofer unloaded 22,020 shares on Friday and 112,980 shares on Tuesday at prices in the range of $98.00-to-$99.90 per share, remaining with 5,858 shares. Jorge Vilches, President and Chief Executive Officer of Pullmantur Cruises (one of Royal Caribbean Cruises’ six brands), discarded 1,035 shares last Monday at a sale price of $98.50 per share, reducing his stake to 12,485 shares. The shares of the cruise company are trading at an extremely high trailing P/E ratio of 38.42, but analysts and market participants have great expectations on the company’s forthcoming quarters. In fact, its forward P/E ratio of 15.93 (the ratio for the S&P 500 stands at 17.65) might actually suggest that the stock is slightly undervalued at the moment relative to the broader market. At the same time, it is not surprising to see insiders cashing out their holdings if considering that the shares of Royal Caribbean Cruises have advanced by more than 130% over the past two-year period. The number of hedge funds owning shares in the cruise company decreased to 43 from 49 during the second quarter. Van Schreiber’s Bennett Lawrence Management held a 106,541-share stake in Royal Caribbean Cruises Ltd (NYSE:RCL) on September 30, which represented its fifth-largest holding at the end of the third quarter (read more details).

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