These Companies’ Top Executives Are Selling Shares; Should Investors be Concerned?

Research shows that corporate insiders tend to time the markets well when it comes to buying their company’s shares, thanks to their contrarian approach to investing and superior information advantage. While it’s not a guarantee that an individual investor will generate similar returns by mimicking certain insider trades, there is evidence to support the monitoring of insider trading behavior. Some studies on insider trading suggest that companies with strong insider selling usually generate lower stock returns than companies witnessing insider buying. Heavy insider selling does not necessarily suggest that a stock is poised to plummet in the near future, but this type of activity can serve as a general indication that insiders do not anticipate any major positive developments in the future. The Insider Monkey team thoroughly examined the pool of Form 4 filings submitted on Tuesday and identified three companies that witnessed noteworthy insider sales during the past several days.

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? From one point of view we can argue that hedge funds are consistently underperforming when it comes to net returns over the last three years, when compared to the S&P 500. But that doesn’t mean that we should completely neglect their activity. There are various reasons behind the low hedge fund returns. Our research indicated that hedge funds’ long positions actually 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).

Philip Morris International Inc. (NYSE:PM) had one of its most influential insiders unload shares this past week. Chairman Louis C. Camilleri reported selling 80,000 shares on Friday at prices in the range of $87.46 to $89.25 per share, cutting his overall holding to 833,340 shares. The updated stake includes 15,526 deferred shares.

The shares of the tobacco company are up by 9% over the past 12 months even though tobacco use has been declining in recent years. The company’s cigarette shipment volume totaled 847.3 billion units for 2015, down by 1% year-over-year, excluding acquisitions. At the same time, its reported diluted earnings per share in 2015 reached $4.42, down by 7.1% year-over-year. Although numerous small- and large-scale investors tend to refrain from investing in “sin” stocks such as Philip Morris, there are several major reasons for investing in these stocks. Philip Morris International Inc. (NYSE:PM) operates in a highly-regulated industry that has high barriers of entry, and PMI’s sizable market share gives it a strong competitive advantage over current and new players in said industry. Furthermore, Philip Morris and other tobacco companies tend to have extremely loyal customers, who buy cigarettes even during periods of economic hardship. Most importantly, Philip Morris pays out an annualized dividend of $4.08 per share, which results in a current dividend yield of 4.55%. In the meantime, the stock trades at a forward P/E multiple of 18.86, which is slightly below the ratio of 19.40 for the consumer staples sector. Given that PMI anticipates its international cigarette volume, excluding China and the United States, to decline in the range of 2.0% to 2.5%, the Chairman’s recent sale appears to be well-timed. Andy Brown’s Cedar Rock Capital owned 12.45 million shares of Philip Morris International Inc. (NYSE:PM) on September 30.

The next two pages of this daily insider trading article discusses the insider selling activity observed at C.H. Robinson Worldwide Inc. (NASDAQ:CHRW) and Take-Two Interactive Software Inc. (NASDAQ:TTWO).

C.H. Robinson Worldwide Inc. (NASDAQ:CHRW) saw three executives sell shares last week, while the insider buying activity has been practically non-existent in the past few years. Chief Commercial Officer and Senior Vice President Chris O’Brien unloaded 7,780 shares on Friday at a price of $66.96 per share, cutting his stake to 49,646 shares. Chairman, Chief Executive Officer and President John P. Wiehoff sold 44,382 shares on Friday at prices varying from $66.82 to $67.96 per share, reducing his total stake to 760,884 shares. Vice President of Human Resources Angela K. Freeman offloaded 2,225 shares last Monday at a weighted average price of $64.88 and currently holds 30,521 units of common stock.

The shares of the provider of transportation services and logistics solutions are 12% in the green year-to-date, but they are down by 2% over the past year. The recent insider selling comes after the company reported its financial results for the fourth quarter and full 2015 year, which were quite well received by the market. The logistics services provider generated revenue of $13.48 billion last year, compared to $13.47 billion reported for 2014. Meanwhile, its diluted earnings per share totaled $3.51 for 2015, up from $3.05 per share generated for 2014. The company’s financial performance was boosted by higher truckload net revenue margins, which were positively affected by lower fuel costs. Nonetheless, the company seems to have a rich valuation at the moment if bearing in mind its forward P/E multiple of 17.23, which sits above the average of 15.87 for the companies included in the S&P 500 Index. Donald Yacktman’s Yacktman Asset Management cut its position in C.H. Robinson Worldwide Inc. (NASDAQ:CHRW) by 1.89 million shares during the October-to-December period, ending the quarter and year with 3.10 million shares.

Last but not least, Take-Two Interactive Software Inc. (NASDAQ:TTWO) had its top executive sell shares over the past few days. Chairman and Chief Executive Officer Strauss H. Zelnick reported selling 2,500 shares on Friday and 28,944 shares yesterday, at a price of $35.00 per share, all of which were held by the Zelnick Belzberg Living Trust. After the recent sale, the trust fund holds 195,744 shares, which are indirectly held by the CEO. Moreover, the CEO owns an additional indirect ownership stake of 135,000 shares, which is held by the Wendy Jay Belzberg 2012 Family Trust.

The developer and publisher of interactive entertainment has seen its shares advance by 26% over the past 12 months and by 79% over the past 24 months, so the recent insider selling at the company should not surprise investors. Take-Two Interactive generated $1.04 billion in revenue during the nine-months that ended December 31, up from $782.85 million reported for the same period of the prior year. Numerous financial hubs reiterated or even amplified their bullish views on the company, after Take-Two Interactive released its earnings report for the third quarter of fiscal year 2016 earlier this month. Cowen reiterated its ‘Outperform’ rating on the stock and lifted its price target on it to $43 from $36, while Jefferies restated its ‘Buy’ rating and raised its price target to $41 from $39. Although the company’s Grand Theft Auto series accounted for slightly more than 56% of total net revenue for the nine-month period that ended December 31, analysts believe that the fifth game’s multiplayer component, known as Grand Theft Auto Online, will continue growing at a rapid pace. Meanwhile, the company’s strategy currently focuses on expanding its distribution of existing products and growing its online gaming presence, particularly in China and South Korea, which might also boost sales in the future. Ricky Sandler’s Eminence Capital acquired a 3.47 million-share stake in Take-Two Interactive Software Inc. (NASDAQ:TTWO) during the third quarter.

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