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Number Cruncher

Stocks with heavy insider selling Add to ...

What are we looking for?

Stocks the smart money doesn’t like.

Corporate insiders represent some of the smartest money in the market because senior executives and directors have intimate knowledge of their firms’ operations and prospects. Pension funds and mutual funds are other particularly well informed investors. (All those professional money managers have to justify their salaries somehow.) When all these groups are buying – or selling – it’s a powerful indicator of a stock’s bullish or bearish potential.

More related to this story

To tap into the collective wisdom of the smart money, Constantin Cosereanu of Bloomberg has built a screen that ranks stocks by their attractiveness (or lack thereof) to insiders and institutional investors. On Wednesday, we looked at the Canadian stocks that the screen indicated might be tempting buys. On Thursday, we focused on alluring possibilities in the U.S. market. Today, we wrap things up by going in the opposite direction and examining the stocks about which the smart money is less than enthusiastic.

How the screen works

Mr. Cosereanu attempts to identify companies with major buying or selling trends by looking at percentage changes in insider holdings and in institutional holdings. After weighing both factors equally, he converts the result to a score.

To make today’s list, a company had to be listed in Canada or the United States. Institutional sellers of its shares had to outnumber institutional buyers. And there had to be at least a 10-per-cent decrease in both insider holdings and institutional holdings.

What we found

A diversified list of mainly small-cap companies that have been hit by heavy selling from insiders and institutions. If you’re a current shareholder of any of these companies, or are considering becoming one, this stampede of investors in the opposite direction should obviously raise questions in your mind. Remember, though, to do your own research before jumping to conclusions. The smart money has been wrong before.

 

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