Corporate Insiders Are Fleeing These Three Stocks, Should Investors Follow Suit?

With the proliferation of equity-based compensation at most publicly-traded companies, insider selling metrics have become somewhat useless in recent years. It is relatively simple to understanding why investors keep track of insider buying activity, but it might be quite difficult to recognize the usefulness of tracking insider selling.

Truth be told, there are dozens if not hundreds of reasons why corporate insiders might want to sell shares in their own companies. For example, insiders may want to diversify their holdings, buy a new house or apartment, or even take a vacation. However, as executives and Board members are financially-educated individuals, they would definitely not sell shares after a massive plunge following a disappointing earnings report. On the contrary, corporate insiders are usually acting as contrarian investors by buying low and selling high. So there is good reason to believe that most insiders sell shares when they believe their companies’ valuations are approaching or exceeding their “true” value. Having this in mind, Insider Monkey will now lay out a list of three companies that had their insiders report insider selling with the SEC on Monday.

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).

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Leading Title Insurance Provider Registers Notable Insider Selling

FNF Group of Fidelity National Financial Inc. (NYSE:FNF) has registered a massive volume of insider selling thus far in June, but most insider selling was related to freshly-exercised stock options. Even so, there was some spur-of-the-moment insider selling that could be informative to the investment community. William P. Foley II, Chairman of FNF’s boardroom, discarded 153,645 shares on Friday, 69,568 shares on Thursday, and 37,225 shares last Monday at prices varying from $34.30 to $35.17 per share. Following the recent sales, Mr. Foley currently holds a direct ownership stake of 3.92 million shares.

The shares of the largest title insurance provider in the U.S. are up a little less than 1% so far in 2016. FNF Group of Fidelity National Financial Inc. (NYSE:FNF)’s title business is highly correlated with the level of real estate activity, which is in turn impacted by the price of real estate sales, the availability of funds to finance purchases, mortgage interest rates, as well as the underlying strength of the U.S. economy. The company’s revenues for the first quarter of 2016 were $2.05 billion, slightly lower than the $2.06 billion posted in the first quarter of 2015.

FNF shares are currently changing hands at around 13.1-times expected earnings versus the forward PE multiple of 12.8 for the property and casualty insurance sector, which explains the Chairman’s decision to unload some shares to some extent. The title insurance provider received some love from the hedge funds followed by Insider Monkey during the first quarter, as the number of fund from our system with stakes in the company jumped to 44 from 40 quarter-over-quarter. Keith Meister’s Corvex Capital was the equity holder of 19.13 million shares of FNF Group of Fidelity National Financial Inc. (NYSE:FNF) at the end of March.

The next page of this article will reveal fresh insider selling registered at two other companies.

The CEO of This Diversified Manufacturer Caught Selling Shares

Leggett & Platt Inc. (NYSE:LEG) saw its most influential executive sell shares on the last trading session of last week. President and CEO Karl G. Glassman sold 22,580 shares on Friday at $50.07 apiece, cutting his direct ownership stake to 475,936 shares. Mr. Glassman also holds an indirect ownership stake of 19,943 shares, which is held in a trust fund under the company’s retirement plan.

The diversified manufacturer that designs and produces a large array of engineered components and products found in homes, offices, automobiles, and commercial airplanes has seen its market value gain an impressive 20% since the beginning of the year. Leggett & Platt Inc. (NYSE:LEG)’s business operations are divided into 17 different business units in four segments, which include residential furnishings, commercial products, industrial materials, and specialized products. In mid-May, the company announced a second-quarter dividend of $0.34 per share, higher than the dividend of $0.32 per share paid in the first quarter. The stock sports an annual dividend yield of 2.70%, which is one of the highest yields among the pool of Dividend Aristocrats in the S&P 500 Index. Leggett & Platt has increased its annual dividend payment for 45 straight years at an average compound growth rate of 13%, so the company’s is on track to join the exclusive list of Dividend Kings.

The number of asset managers monitored by our team with stakes in the diversified manufacturer climbed to 19 from 17 during the first three months of 2016. Ken Griffin’s Citadel Advisors LLC had nearly 660,000 shares of Leggett & Platt Inc. (NYSE:LEG) in its portfolio on March 31.

Successful Dining Chain Has One Executive Offload Shares

Denny’s Corporation (NASDAQ:DENN) had one of its executives sell shares this past week. Stephen C. Dunn, Senior Vice President and Chief Global Development Officer, discarded an aggregate of 12,500 shares on Friday at a weighted average price of $10.81 per share. Following the Friday sales, Mr. Dunn continues to hold an ownership stake of 81,797 shares.

The full-service restaurant chain, usually referred to as “America’s diner”, has seen its shares advance by 67% in the past two years and 11% in 2016 alone. The strong performance could be attributed to Denny’s Corporation (NASDAQ:DENN)’s multi-year remodeling process, which has triggered a turnaround at the casual dining chain. Denny’s kicked off its “Heritage” reimage program several years ago, with the company converting roughly 36% of its restaurants to the so-called Heritage image. The company has 1,713 restaurants operating, of which 1,551 were franchised or licensed. Denny’s company restaurant sales grew by 5.1% year-over-year in the first three months of 2016 to $90.39 million, which reflects a 3.5% increase in same-store sales and an increase in the number of company restaurants.

There were 17 asset managers from our system with long positions in the diner chain at the end of March, as compared to 20 registered at the end of December. Those 17 money managers amassed nearly 11% of the company’s total number of outstanding common stock. Jim Simons’ Renaissance Technologies LLC had 3.86 million shares of Denny’s Corporation (NASDAQ:DENN) among its holdings at the end of the first quarter.

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