Heavy Insider Selling at These 3 Companies Amid Global Market Rout

As a general rule, there are two kinds of insider trading: legal and illegal. Illegal insider trading involves trading on material non-public information, which is closely monitored and severely punished by the U.S. Securities and Exchange Commission. However, corporate executives and directors can buy or sell their companies’ shares legally at any time, so long as these transactions do not take place outside companies’ trading windows. Much research shows that insiders’ trades tend to beat broader market benchmarks on aggregate, which also means that non-insiders can generate attractive trading profits by mimicking insiders’ moves without facing the scrutiny of the SEC. The Insider Monkey team pinpointed several noteworthy insider sales at three companies, so this article will focus on investigating those trades.

Prior to discussing the insider trading activity, let’s make you familiar with what Insider Monkey does. At Insider Monkey, we track hedge funds’ moves in order to identify actionable patterns and profit from them. But why do we track hedge fund activity? Our research indicated that hedge funds’ long positions beat the market. In our back-tests covering the 1999-2012 period, hedge funds’ top small-cap stocks beat the S&P 500 index by double digits annually (read the details here).

Loews Corporation (NYSE:L) registered a high volume of insider selling last week, so let’s try to find out what might have triggered the insider bearishness. Andrew H. Tisch, Co-Chairman of the company’s Board of Directors and Chairman of the Executive Committee, reported selling 150,000 shares on Wednesday and 15,300 shares on Thursday at prices that ranged from $35.75 to $36.94 per share, all of which were held by trust funds. Following the recent sizable sales, the Co-Chairman continues to hold an indirect ownership stake of 14.36 million shares, which is held through the aforementioned trusts.

The diversified company has four main subsidiaries, which include CNA Financial Corporation, Diamond Offshore Drilling, Boardwalk Pipeline Partners and Lowes Hotels & Resorts, and was founded by Andrew Tisch’s father Larry Tisch and his uncle Bob Tisch. The holding company mainly derives its cash flow from its subsidiaries, some of which have been severely hit in the past few quarters. For instance, Diamond Offshore Drilling, which provides drilling services to the energy industry through a fleet of 33 offshore drilling rigs, reported a net loss of $274 million for 2015, well below the net income of $387 million it reported for 2014. The bottom-line results included substantial charges related to the write-down of 17 rigs. The subsidiary also halted its quarterly dividend of $0.125 per share in an attempt to preserve liquidity and strengthen its financial health. The subsidiary’s 2015 revenue decreased to $2.42 billion, from $2.82 billion in 2014. Let’s not forget to mention that the shares of the holding company are down by nearly 17% over the past 12 months. Ric Dillon’s Diamond Hill Capital was bullish on Loews Corporation (NYSE:L) in the fourth quarter of 2015, during which the fund upped its stake in the company by nearly 475,000 shares to 4.86 million shares.

Let’s head to the next page of this article, where we discuss the insider selling witnessed at Honeywell International Inc. (NYSE:HON) and Equifax Inc. (NYSE:EFX).

Honeywell International Inc. (NYSE:HON) has not had any corporate insiders purchase shares since the summer of 2013, whereas the insider trading activity on the sell side has been extremely high lately. Vice Chairman Roger Fradin unloaded 31,384 shares on Wednesday at prices varying from $102.56 to $103.01 per share, trimming his direct ownership stake to 44,364 shares. The Vice Chairman also holds an indirect ownership stake of 3,779 shares, which are held in a 401(k) plan.

The shares of the diversified technology and manufacturing company are currently trading at the same level they were trading at a year ago, and it would be reckless to pinpoint specific developments that might explain the executive’s recent sale. At the end of 2015, Honeywell completed the acquisition of meter-maker Elster Group SE, a deal that was valued at $5.1 billion. The acquisition was part of the company’s mergers and acquisitions expansion strategy, which involves a five-year M&A target of $10 billion. The aforementioned Vice Chairman is the one responsible for advancing the strategy towards reaching its goal through the end of 2018. Honeywell International generated sales of $38.58 billion in 2015, down from $40.31 billion reported for 2014. Nonetheless, the company’s reported earnings per share for 2015 increased to $6.04, up from $5.33 per share in 2014. It should also be mentioned that Honeywell’s management anticipates its full-year 2016 sales to be in the range of $39.9 billion to $40.9 billion, which denotes an increase of 3%-to-6% year-over-year. To sum up, the industrial giant seems to be fairly valued at the moment relative to its peers given its forward P/E multiple of 14.27, which is slightly below the average of 14.80 for the Industrial Machinery industry. Ken Griffin’s Citadel Advisors LLC boosted its position in Honeywell International Inc. (NYSE:HON) by 3.92 million shares during the fourth quarter to 4.53 million shares.

Let’s wrap up our examination by looking at the insider selling at Equifax Inc. (NYSE:EFX), which had two executives trim their holdings this past week. Chief Investment Officer David Webb sold 3,983 shares on Friday at prices that fell between $96.50 and $96.80 per share and currently owns 19,202 shares. Furthermore, Corporate Vice President and Chief Legal Officer John J. Kelley III discarded a 17,827-share block on the same day at prices ranging from $96.68 to $97.11 per share. After the recent selloff, the CVP continues to own 10,843 units of common stock.

The provider of information solutions, employment, income verification and human resources services has seen its stock drop by 12% since the beginning of 2016. The recent insider selling comes after the company released strong fourth quarter financial figures and provided a strong outlook for 2016. The credit reporting company generated $2.7 billion in revenue last year, which was up by 9% year-over-year, while its diluted earnings per share increased by 19% year-over-year to $3.55. In terms of 2016 guidance, Equifax anticipates revenue of $3.0 billion-to-$3.1 billion, significantly higher than analysts’ expectations of $2.85 billion. The company’s Board of Directors also approved a 14% increase to its quarterly dividend, to $0.33 per share. Last but not least, the company anticipates its 2016 adjusted earnings to be in the range of $4.95 to $5.05 per share, close to the midpoint of analysts’ earnings expectations of $4.99 per share, which yields a forward P/E ratio of 19.53, which is above the ratio of 15.25 for the S&P 500 Index. Jim Simons’ Renaissance Technologies LLC reported owning 334,395 shares of Equifax Inc. (NYSE:EFX) through its 13F filing for the fourth quarter.

Disclosure: None