Insider sales are generally less informative than insider purchases. Historically, insider purchases outperformed the market during the following 12-month period. On the other hand, insider sales had not beaten the market as they are usually motivated by diversification or liquidity. However, if a stock is sold by a large number of insiders, and the stock is also targeted by short sellers, investors should be cautious about that stock. In this article, we are going to discuss large-cap stocks that insiders and short sellers sold recently.
EMC Corporation (EMC): EMC was sold by three insiders in late January and all these insiders sold large amounts of shares. David Goulden, EVP and CFO at EMC, sold 40,000 shares of EMC at $25.71 on January 30. Goulden also sold 65,000 shares in total at $25.14 per share on January 25. Two other insiders at EMC, Howard Elias and Paul Dacier, also sold 49,611 shares and 50,000 shares respectively at about $25.4 per share on January 25. Elias is president and COO at EMC, and Dacier is the EVP and general counsel. Now EMC is trading at $26.39. But it seems that the market does not think the insider sales are significant. EMC returned about 2.6% so far since January 30, versus 2.4% for SPY in the same period. EMC is also targeted by short sellers. It has an open short interest of 6.25% and the short interest increased by 22.52% over the past month. Sixteen hedge funds sold out their EMC stakes over the third quarter, including Louis Bacon's Moore Global Investments, Ken Heebner's Capital Growth Management and Julian Robertson's Tiger Management. Analysts are bullish about EMC on average. It has an average analyst recommendation score of 1.80 (1=strong buy, 2=buy, 3=hold, 4=sell, 5=strong sell). However, we think investors should at least "hold" the stock, not only because the company is sold by insiders and short sellers, but also because it is faced with the pricing pressure in the highly competitive storage industry.
Yahoo (NASDAQ:YHOO): YHOO was sold by one insider over the past month. On January 19, David Filo, the co-founder of Yahoo, sold 166.500 shares of YHOO at $16.0782 per share. Filo also sold another 166,500 shares in late December at $16.1435 and 366,500 shares at $14.98 in late November last year. YHOO is now trading at $15.92 per share, down about 1% since January 19. During the same period, SPY was up 2.34%. YHOO has an open short interest of 3.39%, up 14.63% over the past month. It seems that hedge fund managers do not agree with Filo and short sellers. At the end of the third quarter, there were 65 hedge funds with YHOO positions in their 13F portfolios. For example, Dan Loeb's Third Point initiated a brand new $600 million-plus position in YHOO over the third quarter. On the other hand, there were also a few hedge funds that sold out their YHOO stakes during the third quarter, such as Whitney Tilson's T2 Partners, David Tepper's Appaloosa Management LP, Bill Miller's Legg Mason Capital Management and Lee Ainslie's Maverick Capital. We think Yahoo is not managed well but it has the potential to be a very profitable investment. There are ongoing changes in Yahoo's board and we are hopeful that these changes will be instrumental in delivering higher returns to shareholders.
Salesforce.com (NYSE:CRM): CRM was sold by two insiders during the past month. The most recent insider sale occurred on February 3, when Graham Smith, Chief Financial Officer of CRM, sold 2,000 shares at $122.17 per share. Smith also sold 1,000 shares at $114.34 on January 23, 1,000 shares at $112.17 on January 19, and another 11,500 shares at $105.083 on January 17. Another insider, director Craig Conway, also sold 750 shares at $117.26 per share at the beginning of February and another 750 shares at $104.74 in early January. However, it seems that the market does not think these insider sales are noteworthy. CRM closed at $124.10 per share on February 3. CRM is facing stiff competition from traditional software vendors. Additionally, the net income of the company seems to be deteriorating. Net income from the recent two quarters are both negative. For the three months ending October 30, the company had a net loss of $3.76 million, compared with $21.07 million of net income for the same period a year ago. CRM also has a high open short interest of 10.49%, up 4.06% over the past month. Several hedge funds also sold out CRM over the third quarter, including Ray Dalio's Bridgewater Associates and Jim Simons' Renaissance Technologies. We don't like investing in stocks with sky-high PE ratios that insiders and short sellers are dumping. Our research has shown that these high growth stocks historically underperformed the value stocks by almost 5 percentage points annually.
Time Warner Inc (TWC), Walgreen Co (WAG), Duke Energy Corporation (NYSE:DUK), Priceline.com (NASDAQ:PCLN), Capital One Financial Corp (NYSE:COF), Dell Inc (NASDAQ:DELL) and Williams Companies Inc (NYSE:WMB) are also targeted by short sellers and were sold by insiders recently. But we do not think these sales worth a closer look as they are relatively small. But we will be tracking these stocks and report additional insider sales of these stocks.
Disclosure: I am long DELL.