Insider Selling Jumps to Two-Year High
Thu June 5, 2003 12:41 PM ET
By Nick Olivari
NEW YORK (Reuters) - Company insiders sold $3.3 billion worth of stock in May, a 150 percent jump from April and the highest level in two years, reflecting the market's recent rally and the end of seasonal restrictions.
It was also the first time since November that sales exceeded the five-year historic monthly average of $2.4 billion, Thomson Financial said.
But the rise in May sales, reflected across every sector except transportation, was not completely unexpected, according to Lon Gerber, director of insider research at Thomson.
"There is a seasonal component to the sell activity related to corporate restrictions on insider trading during the first earnings season," Gerber said.
Insiders who are restricted from selling around the April first-quarter earnings period have pent-up demand to do so in May. May has tended to have one of the highest monthly levels of insider sales in recent years, Gerber said.
The recent stock rally has also added to the incentive for company insiders to sell stock and take profits. The Standard & Poor's 500 index is up 11.7 percent in 2003, the Nasdaq Composite index has climbed 21.5 percent, and the Dow Jones industrial average has gained 7.8 percent.
CROSS-SECTOR
All three market-cap tiers -- small, mid and large -- saw a wave of selling, each contributing one-third of the total, according to First Call.
But the increase in selling was most dramatic among small-cap executives, who sold almost 300 percent more in May than in the prior month.
Insider sales at health care companies reached $576 million, their highest monthly level since November 2000. Some 17 insiders sold 1.1 million shares of Coventry Health Care ; Express Scripts Inc. saw nine insiders sell 676,567 shares, near a record high; while six executives sold 642,500 Genentech Inc. as the stock approached its current two-year high.
Energy sector insider sales totaled $185 million, a two-year high. Finance sector sales at $438 million for May were at their highest level in 12 months. Technology sector insider sales, at $728 million, were at their highest level in six months.
The technology number excludes sales by Microsoft Corp. Chief Executive Steven Ballmer of more than $1.45 billion in the last two weeks, according to regulatory filings.
Thomson excludes insider sales of more than $50 million from its calculations as they skew sentiment readings, Gerber said.
Some investors monitor insider sales believing that corporate officers with the best view of their company's outlook will buy and sell based on that view.
"Many of those large sales are for philanthropic reasons," by high-net worth individuals, and not related to the outlook for the company or stock market, Gerber said.
Without Ballmer's sales, the ratio of insider sells to buys fell into "bearish territory," Gerber said.
I would rather of seen a more bullish scenario if if you are selling in preference to buying you are saying to me be careful of future we might be to high in our valuations.
Of the 14 occasions the indicator rose above $20 in the last 10 years, S&P declined 10 times in the subsequent 6-month and 1-year time periods, according to First Call data, with an average decline of 6.1 percent and 9.04 percent, respectively.
Insider buying increased 60 percent from April, to $119 million, but remained below the five-year historic average for the ninth straight month. |
