Insiders made noteworthy buys last week (May 7th to 11th, 2012) in several financial stocks, including those operating in the finance, insurance and REIT groups. In this article, we review noteworthy insider buys in four finance, insurance and REIT group stocks trading near highs, and one trading at the lows, in addition to noteworthy trades in several other stocks in the groups.
Insider buys, especially unusually large ones, in stock trading near highs may give investors some confidence that knowledgeable insiders are finding value at such elevated prices. Similarly, noteworthy buys in stocks that have plunged recently, or trading near their lows, may give bulls comfort that the long-term fundamentals may be intact and that a turn may be under-way in the next couple of quarters; sells, on the other hand, at depressed prices after the plunge may lend even further credence to the bear thesis.
The transactions in this article were selected based on a review of over 1,850 separate SEC Form 4 (insider trading) filings last week, as part of our daily and weekly coverage of insider trades. The filings are noteworthy based on the dollar amount sold, the number of insiders buying or selling, and based on whether the overall buying or selling represents a strong pick-up based on historical buying and selling in the stock (for more info on how to interpret insider trades, please refer to the end of this article):
American International Group (NYSE:AIG): AIG is a diversified insurance company that offers group and individual life insurance, annuities and general property and casualty insurance worldwide. On Wednesday and Thursday, three insiders filed SEC Forms 4 indicating that they purchased 20,995 shares for $0.67 million, with the largest purchase of 10,000 shares by Director Morris Offit who ended with 37,250 shares after the purchase. In comparison, insiders purchased just over 62,000 shares in the past year.
AIG shares, one of the most battered ones during the 2008-09, with the company arguably being one of the primary catalysts that led to the market collapse in 2008-09, have made a surprising comeback lately. After share prices fell over 99.9% to a low of around $6, shares have since surged into the $30s, currently trading within 10% of its 52-week high of $35, and up about 35% YTD. In fact, shares have done so well in a relatively short period of time that the U.S. taxpayer stands to make a profit in the range of $15 billion on the bailout investment of $182 billion that was made at the depths of the 2008-09 recession, a nice return on its investment, with the added bonus of having saved the American economy.
AIG shares retreated slightly off the highs in May after the company reported its Q1 (March) the week before last, on Thursday, despite it beat analyst earnings estimates by a wide margin ($1.65 v/s $1.12). The culprit here, besides normal profit-taking after the 75% surge off the lows last November, was the upcoming sale by the Department of the Treasury of a portion of its 70% stake in the company, planned at 163.9 million shares at $30.50 each. AIG shares now trade at 10 forward P/E and 0.6 P/B compared to averages of 10.2 and 0.8 for its peers in the multi-line insurance group. With the recent quarter beat, and with earnings projected to explode from $1.02 in 2011 to $3.17 in 2013, we believe AIG shares look attractive here, especially if they pull-back even further to the $28-$30 range.
Besides AIG, insiders also bought shares in the following five finance, insurance, and REIT group companies last week, including one trading at the lows and three trading at their highs:
- Genworth Financial Inc. (NYSE:GNW), a leading U.S.-based international insurance company offering life and long-term care insurance, annuities, asset management services and mortgage insurance worldwide, in which Acting CEO, and CFO, Martin Klein purchased 15,000 shares for $84,000, increasing his holdings to 20,084 shares. In comparison, insiders purchased 89,500 shares in the past two years. GNW shares plunged recently to their lows, down more than 40% from the highs in February-March period this year.
- Huntington Bancshares Inc. (NASDAQ:HBAN), which operates as the holding company for the Huntington National Bank that provides commercial and consumer banking services via 611 offices in Ohio, Michigan, Pennsylvania, Indiana, West Virginia, Kentucky and Florida, in which Sr. EVP Daniel Benhase purchased 10,000 shares for $64,980, increasing his holdings to 0.28 million shares. In comparison, insiders purchased 0.44 million shares in the past two years. HBAN shares currently trade within 10% of their 52-week highs, and are up about 18% YTD.
- NorthStar Realty Finance Corp. (NRF), a REIT that focuses primarily on originating and acquiring real estate debt, real estate securities and net lease properties, in which Director W D Minami purchased 15,000 shares for $82,800, increasing his holdings to 91,542 shares. In comparison, insiders purchased 0.20 million shares in the past two years. NRF shares currently trade within 10% of their 52-week highs, and are up about 14% YTD.
- Simon Property Group Inc. (NYSE:SPG), a REIT that owns, operates and develops regional malls, outlets and shopping centers, in which Director Larry Glasscock purchased 1,200 shares for $185,700, increasing his holdings to 3,070 shares. In comparison, insiders purchased 2,357 shares in the past two years. SPG shares currently trade within 2% of their 52-week highs, and are up about 20% YTD.
- Hartford Financial Services Group (NYSE:HIG) offers individual and group life, group disability and property and casualty insurance products, primarily in the U.S., in which Chairman & CEO Liam McGee purchased 25,088 shares for $0.48 million, increasing his holdings to 0.23 million shares. In comparison, insiders purchased just over 55,000 shares in the past two years.
In addition to the above, insiders also reported noteworthy sales last week in the financial, insurance, and REIT sector stocks in:
- American Capital Agency (NASDAQ:AGNC), which is a mortgage REIT that invests in single-family residential mortgage pass-through securities and collateralized mortgage obligations for which the principal and interest payments are guaranteed by a U.S. Government-sponsored entity, or a U.S. Government agency, in which Director Morris Davis sold 1,500 shares for $47,341, in comparison to 5,800 shares sold by insiders in the past two years;
- Boston Properties Inc. (NYSE:BXP), a REIT that owns and develops a diverse portfolio of hotel, office and retail properties in four core markets, namely Boston, midtown Manhattan, Washington D.C., and San Francisco, in which two insiders sold 6,500 shares for $0.71 million, in comparison to 40,358 shares sold by insiders in the past year;
- Travelers Companies Inc. (NYSE:TRV), which provides commercial and personal property and casualty insurance products and services to businesses, governments, associations and individuals primarily in the U.S., in which two insiders sold 50,897 shares for $3.3 million, in comparison to 0.61 million shares sold by insiders in the past year; and
- Wells Fargo & Company (NYSE:WFC) is a diversified financial services holding company with 9,000 offices primarily in the U.S., and provides retail, commercial and corporate banking service, in which EVP Michael Heid sold 51,029 shares for $1.7 million, in comparison to 0.33 million shares sold by insiders in the past year.
General Discussion on Insider Trading
The reports in this series identify last week's insider trades of noteworthy significance by sector or industry group, either by virtue of their timing, their size, the number of insiders buying or selling, based on who is buying or selling, or by the trend of their buys and sales over the long-term. The rest of the series by sector and by week can be accessed from our author page.
What is Insider Trading?: Insider trading as defined here (and by the SEC) includes not just corporate insiders such as company executives and key employees, but also directors and large shareholders that have access to non-public information. Large shareholders are defined by the SEC for this purpose are those that having beneficial ownership of ten percent of more of the firm's equity securities (including institutional investors). Also, in the U.S., "insiders" are not just limited to corporate officials and major shareholders, but also when a corporate insider "tips" a friend about material non-public information, the duty the corporate insider owes the company is now imputed to the friend who is now in violation of a duty to the company if he or she trades on the basis of that information. The U.S. is generally viewed as having the strictest laws against illegal insider trading, and makes the most serious efforts to enforce them.
While most insider trading is legal, the term is commonly used to refer to the illegal kind when a corporate insider trades based on material non-public information that can have an effect on the company's share price. By law, insiders are prohibited from trading based on nonpublic information, but most believe that such trading does occur around the edges. The thinking goes that corporate insiders, because of their access, have the most up-to-date information on the health of their companies and the industries they operate in. Investors, as a result, can benefit from the timely knowledge of insider transactions. In fact, one University of Michigan study found that when executives bought shares in their own companies, the stocks tended to outperform the total market by 8.9% over the next 12 months. Conversely, when they sold shares, the stock underperformed by 5.4%.
Timeliness of Information: Like in the 13-D and 13-G filings for Institutions, the SEC Forms 3 and 4 on insider filings are extremely timely, and hence of greater significance, as they must be reported within two business days of the trade.
Insider Buying More Informative than Selling: As a rule, insider buys are more informative than sells. This is because insiders sell often, and they sell for a variety of reasons that may be completely unrelated to the health of the company, including, for example, to diversity their holdings or to pay for an upcoming personal expense. In contrast, insider buying is relatively uncommon, and since they have an exclusive window into their own company's performance, it is reasonable to presume that they probably have good reasons based on information at their disposal when they are risking their own assets to buy company stock.
Regular and Automatic Trades: Insider trades maybe regular trades, or they may be automatic trades made under SEC Rule 10b5-1. It is generally believed that regular insider share purchases and sales carry more predictive value as they are made voluntarily by the insiders. Conversely, trades made under SEC Rule 10b5-1, called "Automatic Buys" and "Automatic Sells", are part of a pre-determined plan or contract, and it is assumed that the plan was created before the insider had any privileged non-public information. Generally, almost all automatic trades are sells, not buys.
Furthermore, even automated trades made under 10b5-1 have some informative or predictive value due to loopholes in the rule that, for example, allow the insider to cancel the trading plan without any penalty or legal liability. So, the insider could set up a 10b5-1 trading plan before they have inside information (for example, from a quarterly report and guidance) while retaining the option to later cancel the plan based on the inside information. So, in effect, the execution of an automated trade also carries some predictive value as insiders retain the option under the existing rules to cancel their trades without penalty or legal liability.
Credit: Fundamental data in this article and company descriptions are based on SEC filings, Zacks Investment Research, Yahoo, Thomson Reuters and Briefing.com. The information and data is believed to be accurate, but no guarantees or representations are made.
Disclaimer: Material presented here is for informational purposes only. Nothing in this article should be taken as a solicitation to purchase or sell securities. Before buying or selling any stock you should do your own research and reach your own conclusion. Further, these are our 'opinions' and we may be wrong. We may have positions in securities mentioned in this article. You should take this into consideration before acting on any advice given in this article. If this makes you uncomfortable, then do not listen to our thoughts and opinions. The contents of this article do not take into consideration your individual investment objectives so consult with your own financial adviser before making an investment decision. Investing includes certain risks including loss of principal.
Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.