April 9, 2010 / 9:59 PM / 9 years ago

Insider selling accelerates into earnings season

* Insider selling accelerates into earnings season

* Insiders sell $6.9 billion in March, buy $830 million

By Edward Krudy

NEW YORK, April 9 (Reuters) - Analysts may be predicting another quarter of robust growth when U.S. corporations start reporting earnings next week, but corporate managers were busy selling their stock before trading windows closed for insiders at the end of the quarter.

InsiderScore, a company that tracks insiders’ trading, said its proprietary scoring model, which emphasizes large insider transactions, spiked sharply to the negative as the number of sellers grew and buying remained anemic.

“Most concerning for us heading into earnings season is the early- to mid-March sales carnival that we witnessed and the unusually weak sentiment reading in the financial sector,” InsiderScore said in a research note.

Some investors see selling by corporate insiders as a useful signal due to the insight that high level managers should have on their own companies. Selling in the run-up to earnings season could be a bearish signal.

Corporate insiders sold $6.9 billion of their own stock in March and bought just $830 million, according to data from TrimTabs Investment Research Inc.

The level of buying matched that of August 2009 and was the highest in the past two years, while insider buying has been below $1 billion for 12 consecutive months, said TrimTabs.

Three executives at Wal-Mart Stores Inc (WMT.N) sold around $7 million of the retailer’s stock in March, according to InsiderScore’s data, while four executives at Wells Fargo & Co (WFC.N) sold over $7 million in the bank’s stock during the month.

Insider activity has shown a strong selling bias since the beginning of the third quarter of 2009, according to InsiderScore, with insiders seemingly reluctant to fully participate in the equities rally that boosted the S&P 500 by more than 75 percent since March, 2009.

Tom Forester, manager of the Forester Value Fund in Libertyville, Illinois, said he does not read too much into the increased insider selling given the generally elevated level of selling that has taken place against a backdrop of rallying equity markets.

“So far I guess the insiders have been wrong because the market has just been on a tear,” he said. “I’m looking for extremes on something like that and I haven’t noticed that it’s gotten real extreme.”

S&P 500 companies are expected to post earnings growth of 37 percent in the first quarter compared with a year ago, with the financials, materials and consumer discretionary sectors expecting the highest growth rates, according to data from Thomson Reuters that aggregates analysts’ earnings estimates. (Reporting by Edward Krudy; Editing by Dan Grebler)

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