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The following commentary comes from an independent investor or market observer as part of TheStreet's guest contributor program, which is separate from the company's news coverage.
NEW YORK (
Insider Monkey) --
Academic research has shown that insider purchases on average outperformed the market over the following 12-month period. On the other hand, insider sales are usually not informative. This is because most insider sales are motivated by diversification or liquidity needs. Therefore, insider sales really do not mean much compared with insider purchases.
research on insider sales has shown that stocks sold under the 10b5-1 plans have large negative abnormal returns. The magnitude of the abnormal returns is about 70 basis points per month calculated by using Carhart's four factor model. In this article, we are going to discuss a few large-cap stocks that insiders are selling like crazy under 10b5-1 plans in the past week. All companies have at least $5 billion market cap.
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Broadcom(BRCM): Four insiders sold BRCM in February. Eric Brandt sold 2,500 shares at $37.1 per share on Feb. 6. On the same day, Robert Rango sold 8,100 shares at $37.13. Rango also sold 2,700 shares at $37 per share on Feb. 1. Two other insiders, William Morrow and Henry Samueli, also sold 2,216 shares and 200,000 shares respectively at around $36 per share on Feb. 1. Rango, Smueli, Morrow, and another insider, John Major, also sold a large amount of BRCM shares in January.
Today BRCM is trading at $37.17 per share. Since the beginning of February, the market was up 1.57%. BRCM's price almost did not change in this period.
Over the third quarter, a few hedge funds sold out their BRCM stakes, such as
Andreas Halvorsen's Viking Global.
George Soros and Jim Simons are also no longer bullish about BRCM. We don't think these insider sales are motivated by negative inside information or expectations.
First, Broadcom's current P/E ratio is higher than 20, but its forward P/E is around 12. Second, the stock is positively affected by the increases in
Apple's(AAPL) sales because Apple uses Broadcom's chips in its products.
Third, BRCM has greater dependence than most other companies on stock-based compensation. As a result of this we see very large insider sales in the company. Fourth, there was a recent insider purchase. Whenever, there is a large insider purchase, that offsets the negative signals sent by insider sales.