General Motors, General Electric, Keurig Green Mountain Are Insider Favorites
After years of record gains, It would be hard to blame the officers and directors of many companies for cashing in their shares to buy that speedboat—or yacht—they’ve always wanted. But insiders at several large U.S. companies are doing the opposite: They are shelling out cash to buy shares, in a bet that the stocks will keep rising.
LOADING UP: At a time when corporate insiders might be tempted to cash out, some are buying company shares. Keurig Green Mountain insiders have had a history of particularly well timed buys and sells. Illustration: Dan Picasso for Barron’s
“The insiders don’t seem to be scared,” says Jonathan Moreland, director of research at InsiderInsights.com, which tracks corporate-insider buying and selling, and uses insider activity to screen for stocks to buy and sell in managed accounts. “The fact that they aren’t running for the exits, even though stocks are up 100% from the bottom, is significant.”
While insider buying isn’t widespread, David Miller, portfolio manager at the Catalyst Insider Buying fund, notes the pattern is prevalent in “companies that form the backbone of the American economy,” including industrials and materials providers, and consumer-goods producers. Miller’s fund buys shares of companies whose insiders are making significant purchases.
Board members lately have been buying shares of General Electric (ticker: GE), Keurig Green Mountain (GMCR), Chevron (CVX), Newell Rubbermaid (NWL), Sotheby’s (BID), and General Motors (GM).
Four GE directors bought shares in April, a seeming vote of confidence in the company’s plan, announced on April 10, to sell off the bulk of its financial assets. Director Mary Schapiro, former chairman of the Securities and Exchange Commission, was among the buyers, purchasing 7,000 shares on April 30 at an average price of $27.22, for a total buy of about $190,500. It was the first time she had purchased shares since joining the board in 2013.
Director Francisco D’Souza, CEO of Cognizant Technology Solutions (CTSH), bought just under $1 million worth of stock. “For such a large-cap stock like GE to see a cluster of activity like that is rare,” says Moreland. GE shares have fallen 5% since April 10, to a recent $27.29.
Five insiders at Keurig Green Mountain, the coffee and tea seller, also bought stock last month, as shares continued to plunge from an all-time high of $157.10 last October to a recent $85.93. The biggest purchase came from Jose Octavio Reyes, a former top executive at Coca-Cola (KO), who spent $1.3 million to buy 15,000 shares at an average price of $89.82.
Miller says insider activity at Green Mountain is always worth watching. Several insiders sold stock in August 2011 at prices above $100 per share; by the end of the year, the shares were trading below $50. Directors bought stock in August 2012, after the price had fallen to the low-$20s. By May 2013, the shares had more than tripled.
Green Mountain insiders, says Miller, have had “an incredible track record predicting where the stock is headed in the near term.” Miller’s fund added Green Mountain shares after the recent buys.
Miller also bought shares of Chevron after one of its directors, John Stumpf, CEO of Wells Fargo (WFC), bought $19.5 million worth of stock on May 11 at an average price of $108.10 per share. “You have to have some pretty strong conviction” to make a purchase of that size, Miller says.
Stumpf last bought Chevron shares in February 2011 at $96.43 a share; the stock traded consistently above $100 in 2012, and topped $120 in 2013.
At Newell Rubbermaid, Director Raymond Viault bought $200,000 in stock on May 15, the first significant buy at the company since 2008, according to InsiderScore.com. Miller also saw the Rubbermaid buy as significant, and bought a small stake.
INSIDER BUYING AT Sotheby’s has been anemic in recent years. Activist investor Dan Loeb criticized that very fact in a letter to the art-auction outfit last year, writing that “the most telling predictor we have found of a misaligned board is a lack of stock ownership by the directors. Viewed through this prism, the Sotheby’s board fares abysmally. Together, the current board owns only 0.87% of the outstanding common stock of Sotheby’s.”
Sotheby’s Director John Angelo took a small step toward reversing that trend with buys worth $2.3 million from May 15 to May 28, purchasing shares at an average price of $44.46 per share. But insiders look to be sending mixed signals; Kevin Ching, CEO of the company’s Asian operations, sold $1.1 million of stock on June 3.
General Motors has seen a spate of insider buying in recent weeks. Four directors bought shares between the end of April and June 3 at prices ranging from $35.28 to $35.84. It has been almost four years since a group of insiders bought. In August 2011, four insiders, including then-CEO Daniel Akerson, acquired shares in the low-to-mid $20s, according to InsiderScore.com. The stock changes hands today at $35.12, yielding a nice return for those who bought and held.