Heavy Insider Selling at Pioneer Natural Resources (PXD), BNY Mellon (BK), Graphic Packaging (GPK)

The dollar value of insider selling in April was the second-lowest monthly total in the past 12 months, which may serve as a promising indicator for some investors. Heavy insider selling can serve as an alarming trend, as it may encourage outside investors to start selling shares as well. Insider trading watchers should bear in mind who is doing the selling, considering that Form 4 filings disclosing insider buying and selling can be submitted by top-tier executives, directors, or even major shareholders such as hedge funds and activists. Therefore, a Chief Executive Officer unloading shares may serve as a more alarming signal than a hedge fund manager, which is why we don’t discuss insider trading involving large shareholders. With that in mind, let’s proceed with an analysis of three noteworthy insider sales reported to 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).

This Paperboard Packaging Solutions Provider’s Chairman Unloads Sizable Block of Shares

Graphic Packaging Holding Company (NYSE:GPK) has recorded a high volume of insider selling in the past several months, so let’s take a glimpse at the most recent activity. Chairman David W. Scheible, former Chief Executive Officer of Graphic Packaging, sold 100,000 shares on Monday at prices that ranged from $13.14 to $13.24 per share, cutting his holding to 1.07 million shares. Mr. Scheible sold an additional 200,000 shares in March at prices ranging from $12.58 to $12.74 per share. The provider of paperboard packaging solutions has seen its shares advance by a whopping 142% in the past five years, so it may be a wise decision for long-term employees such as Mr. Scheible to sell some shares and diversify.

Nonetheless, Graphic Packaging Holding Company (NYSE:GPK)’s stock has not performed particularly well in the past 12 months, losing 9% of its value. The company has completed a series of acquisitions over the past several months in an attempt to expand the reach of its operations across the globe. Most recently, the company completed its previously-announced acquisition of Colorpak, a folding carton supplier in Australia and New Zealand. Colorpak operates three folding carton facilities that convert paperboard into folding cartons. Moreover, Graphic Packaging also acquired G-Box in early January, which involved the acquisition of two folding carton converting facilities in Mexico. In February, the company acquired folding carton manufacturer Walter G. Anderson Inc., which operated two sheet-fed folding carton converting facilities in the United States.

Graphic Packaging’s shares are currently trading at 14.5-times analysts’ consensus 2017 EPS estimate, slightly below the forward P/E multiple of 17.7 for the S&P 500 Index. There were a total of 41 hedge funds tracked by Insider Monkey with stakes in the company at the end of December, which amassed roughly 28% of its outstanding shares. Iridian Asset Management, founded by David Cohen and Harold Levy, had 27.37 million shares of Graphic Packaging Holding Company (NYSE:GPK) in its equity portfolio at the end of 2015.

The next two pages of this article discuss the recent insider sales registered at Pioneer Natural Resources (NYSE:PXD) and Bank of New York Mellon Corp (NYSE:BK).

Healthy Independent E&P Company Witnesses Cluster of Insider Selling

The investment community may find the cluster of insider selling registered at Pioneer Natural Resources (NYSE:PXD) quite informative, considering that the cluster involved three different executives. To start with, Chairman and Chief Executive Officer Scott D. Sheffield discarded 30,000 shares on Thursday at a weighted average price of $168.88, cutting his direct ownership to 621,868 shares. Moreover, Mark S. Berg, Executive Vice President of Corporate/Operations, sold 7,000 shares on the same day for $168.71 each, which trimmed his stake to 51,266 shares. Last but not least, Kenneth H. Sheffield Jr., Executive Vice President of STAT, WAT and Corporate Engineering, unloaded 2,500 shares on Thursday at $167.99 apiece, reducing his holding to 24,431 shares.

The shares of the independent oil and gas exploration and production (E&P) company have climbed by 28% since the beginning of 2016. The company, which is said to have the healthiest balance sheet among American E&P companies, has operations mainly in the Permian Basin, the Eagle Ford Shale play, the Raton field, and the West Panhandle field. Pioneer Natural Resources had $2.72 billion in long-term debt on March 31 and $1.61 billion in cash and cash equivalents. Moreover, the company also had $1.50 billion of unused borrowing capacity under its credit facility.

Pioneer is currently in the process of reducing its horizontal drilling activity to 12 rigs by mid-2016, from 24 rigs at the end of 2015. The company currently has 14 horizontal drilling rigs running, all of which are located in the Permian Basin. However, the company’s management is expecting to add 5-to-10 rigs as soon as crude oil prices recover to $50 per barrel. Russell Lucas’ Lucas Capital Management cut its stake in Pioneer Natural Resources (NYSE:PXD) by 25% during the March quarter, to 16,740 shares.

BNY Mellon Has Influential Executive Sell Shares

Bank of New York Mellon Corp (NYSE:BK) also witnessed notable insider selling activity last week, after the first insider sale of the company’s shares was recorded in 2016. Mitchell E. Harris, Chief Executive Officer of Investment Management, offloaded 19,295 units of common stock on Thursday at prices varying from $40.65 to $40.69 per unit, trimming his overall holding to 194,689 units.

The shares of the custodian bank are 4% in the red year-to-date despite having gained 13% in the past three months. The 13% gain has been partly driven by the company’s strong first quarter earnings report, which reflected the positive impact of the Federal Reserve’s decision to increase short-term interest rates for the first time in almost a decade in December. Bank of New York Mellon recorded first quarter net income of $804 million, up from $766 million reported for the first quarter of 2015. Higher interest rates resulted in higher income from investments and also enabled the company to re-impose management fees that had been waived on money market funds.

Trian Fund Management L.P., founded and run by Nelson Peltz, owns roughly 3% of BNY Mellon and has its Chief Investment Officer and founding partner Edward P. Garden on the bank’s Board. “BNY Mellon is an industry leader with attractive businesses and great potential” the activist fund declared back in December 2014, when Mr. Garden was appointed to the Board.

BNY Mellon’s shares are priced at 11.8-times expected earnings, below the forward P/E multiple of 13.8 for the asset management and custody banks sector. A total of 49 hedge funds in our database had stakes in BNY Mellon at the end of December, amassing 13% of the bank’s outstanding shares. Ray Carroll’s Breton Hill Capital owns 40,621 shares of the company as of the end of March.

Disclosure: None