Lockheed Martin Corporation (LMT) and Two Other Companies Record Massive Insider Selling

While last week’s dollar volume of insider buying increased significantly week-over-week, the volume of insider selling remained flat relative to the amount of insider selling recorded for the prior week. As most public companies put in place blackout and quiet periods, insider trading activity is generally extremely sluggish during earnings-heavy weeks. However, with 62% of all S&P 500 companies having reported earnings for the first quarter of 2016, one might anticipate both insider buying and selling activity to speed up in the upcoming weeks. Approximately 74% of the companies that have already released their earnings reports reported earnings above analysts’ estimates, while only 55% of those companies reported sales above estimates. Considering these encouraging figures, one might expect insider selling activity to increase given that most insiders usually act as contrarian investors: buy shares when no one want them and sell shares when everyone wants them. Leaving this speculative assumption aside, Insider Monkey scanned most Form 4’s filed with the U.S. SEC on Friday and pinpointed three companies with the highest volume of spontaneous insider selling (insider selling that was not related to pre-arranged trading plans).

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).

The World’s Largest Military Contractor Witnessed Two Executives Sell Shares This Past Week

To begin with, Lockheed Martin Corporation (NYSE:LMT) two executives unload shares last week. Marillyn A. Hewson, Chairman, President and Chief Executive Officer, sold 25,000 shares on Thursday at prices that ranged from $232.57 to $233.83 per share, cutting her overall holding to 68,727 shares. Maryanne R. Lavan, Senior Vice President and General Counsel, discarded 14,720 shares on Thursday at prices that fell between $232.92 and $233.74 per share after exercising the same amount of employee stock options. Ms. Lavan sold an additional 7,000 shares on the same day at prices ranging from $232.87 to $233.44 per share, after which she currently owns a mere 4,122 shares.

The global security and aerospace company has seen its market value gain 190% in the past five years and 22% in the past year alone, so the recent insider selling should not surprise anyone. Lockheed Martin Corporation (NYSE:LMT)’s product sales for the first quarter of 2016 that ended March 27, which accounted for 76% of total net sales, increased 14% year-on-year to $8.94 billion. The increase in the company’s top-line figure was mainly driven by increased product sales of $740 million from the Mission Systems and Training (MST) business segment, mainly due to acquisition of Sikorsky, and $470 million from the Aeronautics segment due to higher sales of the F-35 joint strike fighter. In November 2015, the world’s largest military contractor based on sales completed the $9.0 billion-acquisition of Sikorsky Aircraft Corporation, which manufactures military and commercial helicopters. The company recently raised its full-year 2016 earnings per share guidance to the range of $11.5 to $11.80 from the previous range of $11.45-to-$11.75 despite missing first-quarter earnings estimates.

Lockheed’s shares are currently changing hands at around 16.9-times expected earnings, slightly above the forward P/E multiple of 16.2 for the aerospace and defense segment. Ray Carroll’s Breton Hill Capital owns 2,384 shares of Lockheed Martin Corporation (NYSE:LMT) as of the end of the March quarter.

Let’s head to the next pages of this article, where we will discuss the insider selling registered at Laboratory Corp. of America Holdings (NYSE:LH) and Western Alliance Bancorporation (NYSE:WAL).

This Healthcare Diagnostics Company Saw its CAO Sell Shares Last Week

The insider buying activity at Laboratory Corp. of America Holdings (NYSE:LH) has been non-existent in recent years, whereas the volume of insider selling has been constantly on a rise. Chief Accounting Officer Edward T. Dodson sold 9,392 shares on Wednesday at prices that fell between $126.07 and $126.82 per share, cutting his overall holding 2,716 shares.

Laboratory Corp. of America Holding is the leading healthcare diagnostics in the world that conducts its business operations through two segments: LabCorp Diagnostics (LCD) and Covance Drug Development (CDD). LCD is an independent clinical laboratory business that comprises a network of 39 laboratories and roughly 1,700 patient service centers (PSCs), while CDD operates as a drug development services company. Some analysts and investors might be concerned that the healthcare diagnostics company is vulnerable to declining fees for laboratory services reimbursed by Medicare, but only 13% of LCD’s revenue was reimbursed under the Clinical Laboratory Fee Schedule (CLFS) and Physician Fee Schedule (PFS) last year. The global market for both consumer lab tests and pharmaceutical research continues to be quite fragmented, so LabCorp appears to be well-positioned to keep expanding overseas through mergers and acquisitions. The company has invested net cash of $5.8 billion and equity of $1.8 billion in strategic business acquisitions since 2010.

Shares of LabCorp have gained 11% in the past three months and are up 1% year-to-date. The stock is priced at nearly 13.0-times expected earnings, below the forward P/E ratio of 15.5 for the healthcare industry and the ratio of 17.7 for the S&P 500 Index. Larry Robbins‘ Glenview Capital had 5.66 million shares of at Laboratory Corp. of America Holdings (NYSE:LH) in its equity portfolio at the end of 2015.

Western Alliance Recorded Cluster of Insider Selling Last Week

Western Alliance Bancorporation (NYSE:WAL) registered a cluster of insider selling last week, so let’s take a brief look at the most noteworthy insider sales. To start with, Board member William S. Boyd sold 15,219 shares on Wednesday and 4,531 shares on Thursday at prices varying from $37.00 to $37.39 per share, all of which were held through the William S. Boyd trust fund that continues to own a stake of 4.04 million shares. Mr. Boyd also holds a direct ownership stake of 9,500 shares. More importantly, Chairman and Chief Executive Officer Robert Gary Sarver discarded 94,646 shares on Tuesday at a weighted average price of $36.92 per share, which cut his direct ownership stake to 1.16 million shares. Moreover, Robert Reoch McAuslan, sold 10,000 shares a day earlier at prices that fell in the range of $36.49 to $36.51 per share. After the recent sale, Mr. McAuslan continues to hold a 43,323-share stake.

Just recently, the Arizona-based bank holding company completed the previously-announced acquisition of the $1.4 billion domestic select-service franchise finance loan portfolio from General Electric Company (NYSE:GE)’s GE Capital US Holdings, as part of GE’s strategy to divest its finance arm. The loan portfolio, which was purchased for $1.28 billion, does not contain non-performing loans and has a yield of 4.8%. Shares of Western Alliance have advanced 18% in the past 12 months and change hands at around 12.6-times expected earnings, versus the forward P/E multiple of 12.0 for the regional banks sector. The number of money managers from our system with stakes in Western Alliance declined to 22 from 28 during the December quarter. Israel Englander’s Millennium Management owned 2.01 million shares of Western Alliance Bancorporation (NYSE:WAL) at the end of December.

Disclosure: None