Buyers Are Cautioned as Corporate Insiders, Usually in the Know, Continue to Sell Stock
Corporate insiders, who generally know a good thing when they see one, have been selling a lot of stock into the rally via public offerings. The question is whether the buyers will do as well as the sellers.</br></br>Recently, investors have been deluged by common stock offerings from financial companies, specialty retailers and others in hot industries. In numerous cases, including Bear Stearns, Colonial Group and Consolidated Stores, some or all the shares being offered to the public were previously owned by company insiders. T. Rowe Price Associates insiders are considering the offer of some of their shares to outsiders.</br></br>Even corporate stockholders are cashing in some of their chips. American Express has sold a piece of Fireman's Fund and General Electric plans to sell half its stake in Black & Decker.</br></br>The trend is expected to continue while the rally lasts. But the skeptics say buyers should beware of concentrated stock sales by company officers, directors and others. After a big run-up in the market, such offerings are usually priced at a generous multiple of the company's earnings. Moreover, while a public offering is considered more acceptable than discreet insider selling, some money managers and analysts think the message is the same in either case.</br></br>When insiders reduce their equity holdings, "we often look at it as a signal by those who know the company best that the stock is at a near-term top or at least fairly priced," says Robert Natale, editor of Standard & Poor's "Emerging & Special Situations" newsletter.