Insider buying has fallen off a cliff

Eight weeks of gains for the market this year and still no technical indicators signaling an imminent downturn yet;  is this sustainable?  Why does the market still have a positive bias with insiders retreating in droves?  What started out in December as a sharp uptick in insider buying has now collapsed.  There was a tsunami of insider buying in 2009.  Today there is little enthusiasm so I’m skeptical that the momentum can be maintained.  I wrote in a prior blog post about conditions that would lead to a sustainable rally and one of them was the Federal Reserve taking their foot off the brakes.  That happened, the Fed blinked and signaled the rate hike cycle was over. The market shot upwards easing the angst of December.

For a sustainable stock market rally to continue, we will have to see a major resumption of the insider buying trend that started in December. In fact, its done the opposite. Insiders, now 8 weeks into the 4th quarter earnings season, see little reason to buy their stock.

There were few buys last week of any interest.  10%  shareholders adjustED their holdings but the only purchases of interest by directors and officers of any companies are outlined below:

Buys

KMI Kinder Morgan  Founder and Chairman of the Board, Richard Kinder, continues to add to his vast holdings of KMI , purchasing 1,280,192 shares at an average price of $18.13.  Although inconsequential when you own 248 million shares of KMI, the consistency;week-in and week-out buying is highly unusual. These purchases were made near a 52 week high which makes them unusual as insiders tend to buy closer to a 52 week low than its high.

POST  POST HOLDINGS Chairman Stiritz continues to buy the stock before the Power Bar spin-off this summer.  Stiritz 169,814 shares at $96.93 on 2/6/18. These shares were purchased near a lifetime high in the stock price.  Hey Kellogg, if you’re listening, take a look at your fellow cereal maker over here at a lifetime high while you stagnate at a five year low.

EIDX Eidos Holdings CEO Neil Kumar must see something in Eidos Therapeutics to shell out $44.28 million to purchase 2,947,645 shares back in December at $14.87 each. On January 23rd, JP Morgan downgraded EIDX to neutral.x

Eidos Therapeutics, Inc., a clinical stage biopharmaceutical company, focuses on developing drugs to treat diseases caused by transthyretin (TTR) amyloidosis (ATTR). It is developing AG10, an orally-administered small molecule designed to stabilize tetrameric TTR, thereby halting at its outset the series of molecular events that give rise to ATTR. The company was incorporated in 2013 and is headquartered in San Francisco, California. Eidos Therapeutics, Inc. is a subsidiary of BridgeBio Pharma LLC.
FSK FS KKR Capital Corp  Chairman Michael Forman adds 239,800 shares as part of a planned purchase of stock in his hedge fund. FSK as of Friday’s closes yields 11.88%.

PLT Plantronics Director Dexheimer bought 25,000 shares at $45.21 spending $1.2 million and increasing his holdings by 86.4%. This is his first open market purchase since 2010 and increased his percentage holdings by 86.4%.  Why? Perhaps the Nov 23 article from Reuters offers some clues. Logitech International SA, a Swiss manufacturer of keyboards and webcams, is in discussions to acquire Plantronics Inc, a U.S. maker of Bluetooth earpieces and gaming headsets, people familiar with the matter said on Friday.  Two days later Logitech confirmed it was engaged in discussions with Plantronics regarding a potential transaction. However, those discussions were terminated. Logitech does not intend to comment further.  Perhaps that merger talk attracted other suitors?  Perhaps a deal is not dead with Logitech.

Plantronics, Inc. designs, manufactures and markets lightweight communications headsets, telephone headset systems, other communication endpoints, and accessories for the business and consumer markets under the Plantronics brand worldwide.

ZBH Zimmer Biomet  Three insiders bought $737k at average prices of $119.69 to $123.62. They were buying immediately after the blackout imposed earnings release.

Sales

Insiders always find ways to sell with  “planned sales” which in reality is just a legal loophole around the SEC restrictions on insider selling during earnings blackout periods.  Some of the more notable ones are described below.

PG Proctor Gamble Co. Six insiders took advantage of PG recent run-up in price to unload $131.6 million of stock, mostly through stock exercises but what is notable is that these options had from 1.6 yrs to 5.4 yrs left.  Nelson Peltz sold $119.8 million of his holdings but still holds 36.7 million shares.

VRTX Vertex Pharmaceuticals Six insiders sold $65.4 million worth of stock, again mostly through stock option exercises with 7.4 to 8.0 years left. That would give me pause before I bought any stock.

CRM Salesforce Six insiders sold $21.2 million of stock thru their stock printing program aka employee options.  Nothing much here as Salesforce makes an all-time high and insiders are always selling. We are willing to short this name with a smallish bet as we don’t believe in going against momentum. Eventually, investors will realize that CRM’s moat is not as great as they think.   In the beginning of cloud-based software, there were no competitors and they amassed this giant market share.  But now there are several affordable competitors whose offerings are priced 1/10 the cost. The quality of the competition is excellent, perhaps superior in ease of use. The first crack in the armor could send this highflyer crashing to earth.  CRM reports quarterly earnings on March 4th, after the market.

HCA HCA Healthcare insiders sold $20.1 million worth of stock. It wasn’t long ago HCA was in the poorhouse in 2012 at $40 per share but at $140 per share, people are making bank and the company is now worth $40 billion dollars. A prudent speculator has to wonder if the risk of Medicare for all any kind of threat to many healthcare providers. Big changes in the healthcare delivery system of this country are inevitable as we have the highest cost of delivery of any developed economy.  Perhaps insiders at HCA are not as complacent as investors as they cashed in stock options with 4-7 years left.

 

 In this report, we examined open market purchases from employees and directors.  Insiders sell stock for many reasons, but they generally buy for just one – to make money.  As a standard, we only look at material amounts of money, $200 thousand or more, as anything less could just be window dressing. The bar is different from selling because the natural state of management is to be sellers. This is because most companies provide significant amounts of management compensation packages as stock. Therefore, with selling, we analyze for unusual patterns, such as insiders selling 25 percent or more of their holdings or multiple insiders selling near 52-week lows. Another red flag is large planned sale programs that start without warning. We generally ignore 10 percent shareholders as they tend to be OPM (other people’s money) and not the SMART money we are trying to go to school on.  Although this info is available for free from the SEC’s Web site, Edgar, we subscribe to the Washington Service as they provide a way to manage and make sense of the vast realms of data.

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