Recently Money Morning Chief Strategist Keith Fitz-Gerald pointed out that insider selling has been soaring of late. He pointed out that according to Vickers Weekly Insider Report the ratio of insider selling to buying by officers and directors stood at better than 9 to 1.
This is a level that has been predictive of near-term tops in the stock market and individual investors need to be on alert for potentially falling stock prices ahead. While this indicator is not a precise timing measurement it is a red flag telling us that the people running publicly traded companies have concerns about valuation and prospects as we head deeper into 2013.
Insiders can tell us something about the potential performance of individual companies as well.
As far back as the mid-1960s Victor Niederhoffer and Jim Lorie combined on studies that showed insider cluster selling was predictive and indicative of lower prices over the next 12 months. Professor Nejat Seyhun of the University of Michigan has also done extensive research and concluded that when insiders sell in clusters it is likely that lower prices are ahead.
Given that insiders in the aggregate are warning of a market decline it is useful to take a look at which stocks are also showing warnings of lower prices ahead.
Insider Selling: Are These the Stocks to Sell?
It makes sense that these issues have a high probability of declining over the next several months and should be avoided by most investors. Those who already own shares may want to consider taking profits and more aggressive traders might want to consider selling these issues short.
One stock that has seen selling recently even as Wall Street endorsed its shares is banking giant JPMorgan Chase & Co. (NYSE: JPM). In the past four months, insiders have combined to sell almost $3 million worth of their shares into the open market. Several other officers and directors have engaged in options-related selling activity of the bank's shares as well.
The stock has done well over the past year, rising by more than 30% and 27 Wall Street analysts have the stock as a "Buy" or "Strong Buy." Given the strong gains in the stock over the past few years investors might be wise to join insiders in ignoring Wall Street opinions and locking in their gains now.
Shares of Texas Instruments Inc. (Nasdaq: TXN) have also done well with the price rising more than 20% over the past few months. The stock hit a new high in February and Wall Street seems to think the hit parade will continue to roll on well into 2013.
However, even as investors have piled into the stock, many insiders have been looking for the exits. So far this year, five insiders have combined to sell more than $4.3 million of stock in the open markets. There has also been extensive options-related selling as well. Most investors would do well to dump shares at his point. Given the weak global economy outlook for the semiconductor markets this is one that might be worth the attention of those looking for ideas to sell short.
While everyone may love a gift in the little blue box from Tiffany & Co. (NYSE: TIF) this has not been the case with shares of the stock. So far in 2013, three insiders, including the CEO, have combined to sell a whopping $67 million of stock in the open markets. As with other companies seeing clusters of open market selling, the upscale jeweler is also seeing options-related selling.
As the stock has recovered from the late November sell off, insiders have taken the opportunity to unload their shares and book gains. Holiday sales were flat for the company and many think they are losing market shares to less expensive jewelry stores as consumers continue to be cautious shoppers for luxury goods. The stock is not cheap with a price-to-earnings ratio of almost 20 and investors would be best advised to take a pass on Tiffany's.
If the aggregate of insiders are correct as Keith Fitz-Gerald suggest and we could see a market decline ahead, these stocks with heavy insider selling may well lead the way lower. Given the two-pronged insider signal for the market as well as the individual companies it is time to take profit in these names and aggressive investors with a bearish view of the markets should consider selling these names short.
Read Keith Fitz-Gerald's full analysis here on the key investor takeaways from this increased insider selling.