- Airbnb (ABNB): The travel industry may not be recovering well if insiders are selling ABNB.
- Zoom Video Communications (ZM): Chances are, companies will recall their workers which makes ZM redundant.
- QuantumScape (QS): While I’d like to give QS the benefit of the doubt, a huge sell order ruins confidence.
- Nucor (NUE): NUE can go either way, with inflationary pressures driving up shares but economic woes posing questions.
- CrowdStrike (CRWD): Endpoint security is now one of the most relevant businesses so insider selling isn’t a concern.
- Kroger (KR): Since groceries represent an indispensable category, KR is probably a buy.
- EOG Resources (EOG): Hydrocarbons will likely be relevant for decades, meaning EOG is a buy.
Before making any investment decision, you must conduct due diligence, which involves assessing multiple factors and variables. Still, if there’s any one metric to pay closer attention to, it’s insider selling. When executives, key employees and stakeholders exit out of their holdings, the move should always make you wonder why. Therefore, analyzing the stocks insiders are selling may provide some insights into future trajectory.
The narrative really comes down to the walking-the-walk concept. If high-level executives truly believed in the marketing pitch that they’re presenting, they presumably would put their money where their mouth is. Thus, whenever insiders buy their own equity shares, they’re almost always doing so because they believe it will move up.
On the other hand, stocks insiders are selling bring a cloud of skepticism.
To be completely fair, you can’t always assume that insider selling necessarily translates to a poor underlying company. At a certain point, stakeholders must cash out at least a portion of their holdings: that’s not nefarious activity, that’s just capitalism. However, when the stocks that insiders are selling are frequent or large in scope, it should inspire an investigatory perspective.
Below are some of the popular stocks insiders are selling and more importantly, whether you should join them or play the part of the contrarian.
Stocks Insiders Are Selling: Airbnb (ABNB)
One of the more intriguing initial public offerings based on its potential utility as a consumer-sentiment barometer, Airbnb (NASDAQ:ABNB) is basically a victim of poor timing. Had it made its debut before the coronavirus pandemic (or better yet, if the crisis never happened) we could be looking at much different circumstances.
Unfortunately for ABNB stock, time machines don’t exist, leaving prospective investors with a tricky trade. Although many people across the world are undoubtedly eager to put the Covid-19 lockdowns and mitigation protocols behind them, several factors including rising consumer inflation and resurgent international cases of the SARS-CoV-2 virus, have dampened enthusiasm.
Perhaps most worrying of all, the load factor for U.S.-based domestic and international flights was 79.8% as of the latest read (November 2021). Considering that the last time loads were below 80% in the pre-pandemic years was during the Great Recession, it’s no wonder why ABNB is one of the stocks insiders are selling.
Risk-averse investors may want to join the Airbnb insider selling due to multiple headwinds impacting the stock.
Zoom Video Communications (ZM)
Arguably Wall Street’s hero during the new normal, Zoom Video Communications (NASDAQ:ZM) played a significant role in how the U.S. responded to the Covid-19 crisis.
At first, it seemed the shutdown of business activity would doom the economy. However, through connectivity solutions like Zoom, white-collar workers were able to keep the corporate lights on while hardly skipping a beat.
Indeed, many workers appreciated the telecommuting pivot. However, it might not last indefinitely. As the New York Times pointed out, companies may demand more productivity through increased hours as an exchange for telecommuting privileges.
I think this is fair because if you put yourself in corporate managers’ shoes, they are losing almost complete accountability from their workers, many of whom don’t have defined work products that lend themselves to quantification of productivity. Indeed, the massive spike of “alternative activities” strongly suggests that millions of people were taking advantage of their employers.
Were people really working or were they doing alternative activities? Corporate America will likely put an end to this and thus, ZM is rightfully one of the stocks that insiders are selling.
One of the more popular speculative investments, QuantumScape (NYSE:QS) is in the business of researching and developing solid-state batteries. Should it be successful, it could change the paradigm of electric vehicles forever.
Part of the problem of EV integration is economics. EVs are pricey upfront compared to combustion-powered cars. As well, consumers have range anxiety.
When QS stock made its debut following a business combination with a special purpose acquisition company, speculators were delighted with the potential of the underlying firm to disrupt the EV industry, as well as the broader automotive sector. However, sparking a revolution in a centuries-old market is no easy task, resulting in an ignominious slide for QS stock.
What might be really distracting, though, is that QuantumScape is also one of the stocks that insiders are selling. On March 21, trustees of the Prinz family sold 156,200 shares at a price of $16.84, for an exit value of $2.63 million.
If you take a look at the total list, that’s not the only insider selling going on. Unfortunately, the size and scope of these transactions are truly distracting for QS. You might want to take note of it.
Stocks Insiders Are Selling: Nucor (NUE)
A producer of steel and related products, Nucor (NYSE:NUE) owns the distinction of being the largest steel producer in the U.S. But before you get too happy, it also happens to be one of the stocks that insiders are selling.
So, which narrative is the one that wins out? Honestly, NUE is ambiguous, which is why I put it smack in the middle of this list.
On one hand, I can completely understand why shares are skyrocketing. On a year-to-date basis, NUE is up over 39%. Over the trailing year, shares have almost doubled. However, the volume of real M2 money stock also skyrocketed, which is basically the culprit of the inflation problem we’re having.
Since the Federal Reserve might not have the political will to attack the money supply problem, we could be looking at a long period of heavy inflation. If so, ownership of companies producing real products is probably the way to go.
On the other hand, extremely high inflation causes economic and social ruptures, among other worrying negatives. It’s just hard to say which forecast will win out.
On the surface, CrowdStrike (NASDAQ:CRWD) seems like one of the investments that people should be piling into, not a “victim” of insider selling. Endpoint security and digital safety networks have long been relevant services due to the costly nature of cyberattacks. To further emphasize the point, CRWD is up double digits in 2022.
Yet CrowdStrike is also one of the stocks that insiders are selling. Per Gurufocus.com, it appears that all of the insider transactions that occurred this year (all in March, by the way) were sell orders. That doesn’t seem very encouraging considering that cybersecurity, in light of Russia’s dangerously unsettling decision to invade Ukraine, commands substantial attention.
While distracting, I believe you can play the contrarian here. According to the Cybersecurity & Infrastructure Security Agency, the “Russian government engages in malicious cyber activities to enable broad-scope cyber espionage, to suppress certain social and political activity, to steal intellectual property, and to harm regional and international adversaries.”
This is probably only going to worsen from here on out, making CRWD a buy even though it admittedly is one of the stocks that insiders are selling.
Although Kroger (NYSE:KR) isn’t exactly the low-cost leader in food products, it is an essential business. Back during the initial onslaught of the Covid-19 pandemic, I remember the outburst of shock as customers realized that all the toilet paper was gone.
But despite its indispensable nature, KR is one of the stocks that insiders are selling. While it’s not the most encouraging of optics, you also can’t help but think this is pure capitalism (and a bit of opportunism) at play here. Look, KR stock is up 26% so far in 2022. You’re lucky to see that over the course of a year with Kroger under normal circumstances.
So, why not cash out? I’d probably do the same if I’m being honest.
Now, this is probably a case where you might not want to buy Kroger shares right this moment. The insider selling might erode valuations and if so, just let it happen. But over the long run, you’re going to want KR in your portfolio for a cynical reason: people can belt tighten but they can’t skimp out on food and water.
Stocks Insiders Are Selling: EOG Resources (EOG)
Not too long ago, I discussed the bullish case for hydrocarbon exploration specialist EOG Resources (NYSE:EOG). While fossil fuels are politically losing their reputation in favor of clean and renewable energy alternatives, the former commands significantly high energy density. That’s not something that you can replace overnight. Combined with its favorable geographic profile, EOG seems like a winner.
Well, I didn’t realize at the time of my discussion that the energy explorer was also among the stocks insiders are selling. Throughout this year, key executives have been exiting their position. Again, while the optics are never great when it comes to insider selling, we need to put these transactions into proper context.
For one thing, EOG stock is up almost 37% so far this year, which means insiders will be tempted to pocket some profits. More importantly, the insider selling this year only represents a small portion of the total shares owned. The more critical factor is the underlying narrative that’s driving up energy prices.
Unless you have a crystal ball on geopolitical flashpoints, it seems likely that the conflict plus inflation will keep costs high, which is cynically positive for EOG.
On the date of publication, Josh Enomoto did not have (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.