Huge Insider Sale by High Profile Executive at Goldman Sachs, Plus Other Noteworthy Insider Transactions

Some retail investors monitor insider trading behavior as part of their stock selection and analysis process, and rightly so. After all, past research concludes that insider purchases tend to beat the broader market on aggregate. Nonetheless, the key word in the previous sentence is “aggregate”, meaning that most purchases likely predict future share price appreciation, but not all of them.

Luckily, there are several approaches to filter out the most informative and predictive insider buying activity. First and foremost, retail investors should look for clusters of buying, which usually serve as more reliable bullish indicators than small, individual purchases. Second, investors should try to avoid the insider buying activity conducted by freshly-appointed Board members or executives to fulfill the stock ownership guidelines imposed by their companies. What’s more, investors should not blindly mimic insiders’ behavior (though this practice has been proven to yield impressive results over the years), but rather, should focus on pairing insider buying with a sound investment thesis. Insider Monkey processed dozens of Form 4 filings submitted with the SEC on Friday and picked five companies with noteworthy insider trading.

At Insider Monkey, we track around 750 hedge funds and institutional investors. Through extensive backtests, we have determined that imitating some of the stocks that these investors are collectively bullish on can help retail investors generate double digits of alpha per year. The key is to focus on the small-cap picks of these funds, which are usually less followed by the broader market and allow for larger price inefficiencies (see more details).

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Board Member at Shopping Mall Owner and Operator Boosts Share Ownership

Let’s kick off our discussion with the insider buying activity observed at DDR Corp (NYSE:DDR). Board member Alexander Otto, the company’s biggest single shareholder, bought 218,699 shares on Thursday and 62,951 shares last Monday at prices varying from $14.86 to $15.03 per share. After last week’s purchases, Mr. Otto currently owns an aggregate of 42.52 million shares.

The aforementioned insider buying comes a little more than three weeks after the CEO and President of the shopping mall owner and operator, Thomas F. August, and another Board member boosted their holdings. The Beachwood-based real estate investment trust that specializes in shopping centers has seen the value of its shares drop by 10% since the beginning of the year. Earlier this month, DDR Corp (NYSE:DDR)’s Board of Directors approved a dividend of $0.19 per share for the fourth quarter, a dividend that yields 5.05% annually. AEW Capital Management, run by Jeffrey Furber, reported owning 3.23 million shares of DDR Corp (NYSE:DDR) in its 13F filing for the third quarter.

The next two pages of this insider trading article will discuss noteworthy insider purchases and sales reported with the SEC on Friday.

Executive at Large Utility Company Buys Shares Ahead of Anticipated December Rate Hike

One member of NiSource Inc. (NYSE:NI)’s executive team bought a block of shares last week. Pablo A. Vegas, Executive Vice President and President of the Columbia Gas Group at NiSource, disclosed Friday the purchase of 21,541 shares at a price of $21.75 per share, with the entire block of shares being held in his 401(k). Mr. Vegas also holds a direct ownership stake of 71,397 shares.

NiSource Inc. (NYSE:NI), one of the largest fully-regulated utility companies in the United States, attracted capital from income-seeking investors amid the low interest rate environment. Although the Federal Reserve has continually delayed a second increase in rates since its first timid move a little more than a year ago, the probability of a rate hike in December is extremely high (i.e. above 95%). Hence, the expected December rate hike from the Federal Reserve appears to explain the recent weakness in the share price performance of NiSource’s stock. Despite an 11%-drop in the past three months, NiSource’s shares are still up 11% thus far in 2016. Cliff Asness’ AQR Capital Management added a 4.65 million-share stake in NiSource Inc. (NYSE:NI) to its portfolio during the third quarter.

Insiders at Master Limited Partnership Increase Their Holdings

Two insiders at Spectra Energy Partners LP (NYSE:SEP) piled up some shares last week. To start with, President and CEO Gregory L. Ebel snapped up 8,000 shares on Thursday at prices that fell between $41.45 and $41.78 per share, boosting his ownership stake to 22,295 shares. J. D. Woodward III, elected to the company’s Board in September 2009, bought 2,500 shares on Tuesday for $42.27 each. After the not-so-distant purchase, Mr. Woodward currently owns 45,000 shares.

Spectra Energy Partners LP (NYSE:SEP) is engaged in the transmission, storage and gathering of natural gas, as well as the transportation and storage of crude oil through interstate pipeline systems. Stewart Glickman, the head of energy research at CFRA Research, has compiled a list of master limited partnerships that are least likely to have an accidental leak on the assumption that spending on maintenance can be equated with safety. According to Mr. Glickman’s calculations, Spectra Energy Partners’ maintenance spending over the period of 2011 to 2015 totaled $1.31 billion, comprising 9.4% of its average assets. As a result, the company ranked second out of 23 companies under review. The shares of Spectra Energy Partners are 12% in the red this year. Jim Simons’ Renaissance Technologies LLC was the owner of 398,000 shares of Spectra Energy Partners LP (NYSE:SEP) at the end of the September quarter.

The final page of this article will focus on discussing fresh insider selling observed at two well-known companies.

Huge Insider Sale by High Profile Man at Goldman Sachs

Let’s turn our attention to a massive insider sale observed at Goldman Sachs Group Inc. (NYSE:GS), where one of the company’s highest profile men offloaded a sizeable block of shares. Michael S. Sherwood, Vice Chairman of the Goldman Sachs Group and co-Chief Executive Officer of Goldman Sachs International, sold 42,317 shares on Wednesday at prices varying from $206.53 to $207.30 per share, cutting his direct ownership stake to 195,041 shares.

Several days ago, analysts at Macquarie upgraded Goldman Sachs Group Inc. (NYSE:GS) to ‘Outperform’ from ‘Neutral’, citing a business mix shift from investing and lending toward investment banking and asset management, among other things. “Although more traditional lenders may benefit more from the steepening of the curve, we believe Goldman Sachs has more earnings levers than peers, should fiscal stimulus and lower corporate taxes help increase economic activity driving better earnings leverage for the leading global adviser in M&A and a leader in ECM [i.e. equity capital markets],” said Macquarie analysts in a recent note. The shares of Goldman Sachs have gained 16% year-to-date. Warren Buffett’s Berkshire Hathaway had 10.96 million shares of Goldman Sachs Group Inc. (NYSE:GS) in its portfolio at the end of September.

Insiders at Well-Known Asset Management Company Unload Shares

Two members of Diamond Hill Investment Group Inc. (NASDAQ:DHIL)’s boardroom offloaded shares last. Roderick H. Dillon Jr., Chairman of the Board, sold 2,188 shares on Wednesday, 8,599 shares on Thursday and 16,000 shares on Friday at prices varying from $200.00 to $202.46 per share. Mr. Dillon currently owns 128,434 shares following the recent transactions. Board member James Francis Laird Jr. liquidated 9,000 shares on Wednesday at a price of $200.00 each, cutting his ownership to 49,562 shares.

The asset management company has seen its market capitalization jump by 7% since the start of the year. Diamond Hill Investment Group Inc. (NASDAQ:DHIL), which derives its revenues and net income from investment advisory and administration services, reported total revenue of $96.06 million for the first three quarters of 2016, up from $92.13 million reported for the same period of the previous year. The increase in the company’s top line was mainly driven by an increase in average assets under management (AUM). The revenue increase was partly offset by higher operating expenses, primarily related to general and administrative expenses, and mutual fund administration expenses. Royce & Associated, founded by Chuck Royce, owned 118,496 shares of Diamond Hill Investment Group Inc. (NASDAQ:DHIL) on September 30.

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