Insider buying, or the legal, reported purchase of shares in a company by its C-suite/board members/large shareholders, is considered a bullish signal. However, does that mean it is best to sell/avoid stocks insiders are selling? Put simply, it depends. Heavy insider selling, or even a lack of insider buying, can sometimes be a sign that those most “in the know” at a company are not very confident in its future prospects.
Then again, much like with “outsider” investors, lack of confidence isn’t the only reason insiders decide to sell. Diversification is a big driver of insider selling decisions. There’s even a Securities and Exchange Commission (or SEC)-approved mechanism for insiders to sell shares without raising red flags with investors and regulators. Through 10b5-1 plans, insiders can plan in advance to sell a particular number of shares each month over a period of months, or even years.
Having said all of this, instead of making broad generations as to whether insider selling is bullish or bearish, let’s take a look at seven stocks insiders are selling, and see whether it’s a sign to buy or a sign to sell.
Source: shutterstock.com/Black Salmon
Going public in late 2020, Airbnb (NASDAQ:ABNB) quickly zoomed higher, thanks to the post-pandemic “revenge travel” trend. However, shares in the lodging marketplace platform have fallen since then. And there are now signs that the boom times for travel are coming to an end.
If that is not concerning enough, there has also been far more insider selling with ABNB stock than insider buying. In particular, by co-founder and board member Joseph Gebbia Jr. Gebbia was a big seller in 2022, and has continued to systematically reduce his Airbnb position. Granted, given these sales appear to be conducted in a pre-planned manner, this may not necessarily be a sign that you too should head for the exits. Yet as a recession looms, all while ABNB trades at a pricey 35.3 times earnings, now perhaps may not be the time to enter/add to a position.
The past few years have been highly favorable for AutoZone (NYSE:AZO). The U.S. vehicle shortage, which has resulted in inflated prices for new and used automobiles, has resulted in motorists holding onto their existing vehicles for longer, providing the auto parts retailer with solid demand growth.
Thanks to this trend, AZO stock has kept hitting new all-time highs. That said, the boom times for AutoZone and its peers may be coming to an end, as the used car bubble deflates. At least, that’s the takeaway from the company’s latest quarterly results.
AutoZone beat earnings estimates for the quarter, but investors reacted negatively to weaker-than-expected sales. It remains to be seen whether (and to what degree) AZO’s fiscal performance deteriorates from here. However, it’s not exactly encouraging that company insiders, most notably CEO William Rhodes III, have sold hundreds of millions worth of AZO shares since last fall.
During 2021, biotech firm Moderna (NASDAQ:MRNA) went from early-stage to cash cow, thanks to the widespread Covid-19 vaccination wave. This pushed the stock to prices nearing $500 per share. For reference, MRNA traded for around $25 per share pre-Covid.
Yet with Covid vaccines dropping off, and the company expected to re-enter the red this year, MRNA stock has given back most of these gains. Some investors may be bullish that Moderna, sitting on nearly $9 billion in cash, will put this war chest to work developing new mRNA vaccines, resulting in a profitable “second act.”
However, management perhaps holds a different view. MRNA has been a stock that insiders are selling. According to MarketBeat, CEO Stephane Bancel and other insiders have sold a total of $322.71 million worth of MRNA shares in the past year. MRNA has also been one of the stocks insiders won’t buy during this time.
As the housing market has cooled but not yet entered “meltdown mode,” shares in homebuilder NVR (NYSE:NVR) continue to perform well. However, just because the proverbial other shoe hasn’t not dropped thus far, doesn’t mean it will not drop.
In other words, the threat of a housing crash is still present. If the chances of an increase keep climbing, NVR stock could plunge, in anticipation of revenue/earnings declines. Much like with other insider selling stocks mentioned above, it doesn’t help that the sale of shares by Executive Chairman Paul Saville and other insiders has picked up in the past month.
A high valuation is another reason why it may be best to skip NVR now. At 11.8 times earnings, the stock trades at a big premium to other major homebuilders. Couple these risks together, and NVR may be one of the top stocks to avoid.
Constellation Brands (STZ)
Constellation Brands (NYSE:STZ) isn’t the best-known alcoholic beverage stock, but many of its brands are household names. These brands include Corona and Modelo beers, along with Robert Mondavi wines. Nevertheless, the fact it has been one of the stocks insiders are selling may seem concerning on the surface. Over the past year, insiders, namely members of the founding Sands family, have made sales of STZ stock totaling $2.5 billion. Still, in contrast to the aforementioned insider trading stocks, Constellation may be worthy of consideration.
Shares sell for a reasonable 20.1 times forward earnings. Sell-side forecasts call for steady earnings growth over the next few fiscal years. STZ’s move into cannabis, via a big investment in Canopy Growth (NASDAQ:CGC) has so far been a bust, full U.S. legalization (which could spark a comeback for the industry) could always emerge out of left field.
TransDigm Group (TDG)
Based in Cleveland, Ohio, TransDigm Group (NYSE:TDG) is a manufacturer of aircraft components. Regarded as a “serial acquirer,” TransDigm has been for years successful at making “bolt-on” acquisitions of companies in its industry. This strategy has made TDG stock a compounder, with shares up more than ten-fold over the past decade. Still, after this stunning decade-long run, it may be reasonable to assume that TransDigm is starting to top out. Shares trade at a pricey 32.7 times forward earnings.
That’s not all. Keep in mind too that investing in TDG now is an example of investing in stocks insiders sell. Insider selling from CEO Kevin Stein and Directors Robert Small and Nicholas Howley has increased recently. This may signal more underwhelming returns ahead for TransDigm. Possible headwinds for the aviation industry post-travel boom is another reason why you may be another to stay away from TDG.
It may be an understatement to say Walmart (NYSE:WMT) is one of the stocks insiders are selling. Over the past year, there has been zero buying of the retailer’s shares amongst C-suite executives, board members, and large shareholders.
At the same time, insiders, primarily the children of company founder Sam Walton, have sold a total of $4.66 billion worth of WMT stock. So, if you currently own this widely-held blue chip, should you follow the lead of the Waltons? Per Louis Navellier, that may be a wise move.
As Navellier argued back in March, Walmart trades at a valuation premium compared to other retailers, and compared to that of the overall market. As of this writing, this premium still stands. If Walmart’s growth slows down due to the current economic headwinds, this valuation gap could narrow. The downside risk with WMT may be far larger than one would assume.
On the date of publication, Thomas Niel did not hold (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.
Thomas Niel, contributor for InvestorPlace.com, has been writing single-stock analysis for web-based publications since 2016.