When a corporate insider places a trade, investors pay attention. This is because the action can signal an executive’s belief as to where the stock is headed in the future.
In the case of an insider buy, a member of the management team purchases company shares that they think are undervalued. Often this occurs after a stock has been trending lower. There are also situations where the timing of the buy is based on a pre-determined trading plan. This means the officer sets up a schedule of regular stock purchases at monthly, quarterly, or annual intervals—sometimes to avoid any appearance of improper insider trading.
Conversely, when insiders sell, they may be telling the market that a stock is overvalued. Investors often translate such activity to mean company growth is likely to slow or that some other challenge lies ahead. There are other reasons for insiders to sell that may have nothing to do with their anticipated direction of the price. One example is when a member of management decides to make a charitable donation with the sale proceeds or by transferring shares in-kind.
Keeping in mind the various rationale for insider trades, let’s look at three recent transactions placed by corporate officers.
Is Steel Dynamics Due for a Pullback?
Steel Dynamics (NASDAQ: STLD) is one of the country’s top steel producers and metal recyclers. Its financial results and share price performance started to decline in mid-2018, a trend that got worse during the pandemic.
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The stock has been on a tear since March 2020 having surged more than 300%. Along the way Steel Dynamics has consistently topped earnings estimates thanks to improving demand for its diverse steel products and increased capacity as a result of value-added acquisitions.
With the stock climbing to record highs above $70, CFO Theresa Wagler decided that it was time to take some shares off the table. From August 26-27, she sold more than $4 million worth of Steel Dynamics across multiple lots. In the end, Ms. Wagler’s position was reduced from 425,161 shares to 365,161 shares.
Although prudent to sell at a high, the 14% reduction in the officer’s holding should carry weight with investors. With Steel Dynamics expected to experience a downturn in 2022 after the extraordinary rebound from the pandemic this year, more profit-taking could be ahead.
Is Oscar Health Stock Going Up?
Digital health insurance provider Oscar Health (NYSE: OSCR) has had a rough debut in the public market. Since its March 3rd IPO, its stock has plummeted almost 60%. A disappointing first quarterly report in which the company posted a net loss of more than $2.00 per share didn’t help matters.
However, a slightly better than expected performance in Q2 has investors taking a second look at the downtrodden stock. A wave of insider buying since the August 12th press release has also helped breathe new life in the upstart digital health company.
There have been eight insider purchases of Oscar Health over the last two weeks made by six different people or groups. The most intriguing buys have come from co-founder Joshua Kushner. From August 20-27, he bought over $22 million of the stock on behalf of Thrive Capital Partners, a Manhattan-based venture capital firm focused on technology innovators.
Since the show of confidence in Oscar Health’s prospects in the digital health space, the stock has curled up and is up 24% off its August 17th low. The company also got a major boost from Morgan Stanley who yesterday gave it a $26 price target. This combined with Mr. Kushner’s statement buy suggests the worst may finally be over for Oscar Health.
Are Insiders Selling BlueLinx Holdings?
BlueLinx Holdings (NYSE: BXC) has been one of the top micro-cap performers. Now in small-cap territory, the Georgia-based building materials company saw its stock rise 105% last year and it has already doubled again in 2021.
BlueLinx is benefitting from the sizzling U.S. housing market with strong single-family housing demand driving demand for its lumber framing and other building products. Last quarter sales jumped 24% and the gross margin swelled from 17% to 24% year-over-year amid elevated lumber prices.
Framing lumber prices have come down sharply off their early summer peak which could have been a factor behind a recent insider sell. On August 25th, Chief Administrative Officer (CAO) Shyam Reddy sold all of her 36,328 shares that had vested as restricted stock units (RSUs). The sale was executed at a price of $61.71 which amounts to a $2.2 million cash out.
It also amounts to an officer selling at a time when BlueLinx just posted a stellar quarter that may not be sustainable as residential construction activity and lumber prices continue to cool. Interestingly, a day after Ms. Reddy sold, Loop Capital issued a ‘hold’ rating and $65 target on BlueLinx citing a third-quarter sales slowdown and commodity deflation.
Companies in This Article:
| Company | Current Price | Price Change | Dividend Yield | P/E Ratio | Consensus Rating | Consensus Price Target |
|---|
| BlueLinx (BXC) | $126.78 | -3.7% | N/A | 36.85 | Buy | $135.67 |
| Oscar Health (OSCR) | $16.18 | -4.0% | N/A | -269.62 | Moderate Buy | $22.93 |
| Steel Dynamics (STLD) | $144.07 | -0.6% | 1.28% | 13.04 | Hold | $144.29 |
