Insider selling trend hits home, as nine local execs cash in stock awards of at least $1 million

Active sellers: Macy's, P&G, American Financial

CINCINNATI - Cincinnati bosses have 30 million new reasons to be happy this holiday season, as a rising stock market led to a surge in insider selling at Cincinnati’s publicly-traded companies.

Most of the hay was made at companies where stock prices are trading or near their all-time highs. Executives who were granted options in prior years to buy company stock as part of their annual compensation package exercised those options in the last two months. In other words, they bought shares low and quickly sold them high, locking in a tidy profit.

As WCPO reported in June , restricted stock and option awards account for roughly half of the annual compensation packages received by local executives in 2012. But those awards were merely estimates, not money in the pockets of local bosses. It’s only when options are exercised and shares are sold that holders reap tangible rewards.

And reap they did in October and November.

  • Macy’s Inc. led the way with 11 executives cashing in stock options for a combined $12.2 million, including $7.1 million for CEO Terry Lundgren.
  • Eight executives at Procter & Gamble Co. netted a combined $7.4 million.
  • Finishing a distant third was American Financial Group, where two executives collected $4.6 million in late October and early November. Co-CEO Craig Lindner accounted for $3.5 million of that total.

The local sales are part of a trend that expert Jonathan Moreland has been tracking at his web site, InsiderInsights.com . Moreland said there are now about twice as many companies where officers and directors are selling more shares than they’re buying.

“This is not the most ever, but it certainly has increased,” he said.

Is 'Miracle Market' Drawing to Close?

Insider selling can be an important indicator for investors, a signal that the people running a company think its stock price has peaked. But Moreland’s analysis of P&G, Macy’s and American Financial shows that all three are ranked near the middle of the company’s 11-point scale, meaning insider transactions are neither a bullish nor bearish indicator for the stock.

Beyond local firms, however, Moreland said insider selling for all public companies has reached levels not seen since 2010. And that causes him to wonder whether the so-called “miracle market” of 2013 might be drawing to a close.  They call it the miracle market because the S&P 500 had its eighth best year since World War II despite a sluggish economy, Congressional crises over budget issues and fears that the Federal Reserve would bring an end to quantitative easing policies that kept borrowing costs artificially low.

“People were calling a bubble to this market months ago,” Moreland said.  “Even though it looks a little ominous, we’re not at a time when we’re bringing in the bull horns. We are finding so many solid company-specific insider buying signals … on firms with good fundamentals.”

Moreland suggests this year’s Wall Street rally was a big factor in Cincinnati’s recent insider selling surge.

Macy’s, for example, hit an all-time high of $54.07 on Nov. 29 after surprising analysts with a strong third quarter earnings report. Macy’s executives held options allowing them to buy shares at prices ranging from $8.76 to $36.26. They sold in mid-November at prices ranging from $50 to 53. Typically, options allow executives to buy at the market price on the date of the grant.

So, options granted in early 2009 could be exercised this year for less than $10.

“If you were an insider in this firm and the stock had gone up as much as Macy’s had, wouldn’t you be interested in selling?” Moreland said.

Trades Part of Longer-Term Trend

In some cases, the recent trades are clearly part of longer-term trends. For example, Craig Lindner has sold about 333,000 shares of American Financial Group in the past 12 months in six transactions worth a combined $18.2 million. His brother, Carl Lindner III, generated $12.3 million from five transactions in which 365,000 shares were sold. Both still hold millions of shares in the company. In fact, Lindner family holdings amount to 20 million shares, or roughly 25 percent of the company.

“Our Co-CEOs sell shares of AFG common stock from time to time,” said Diane Weidner, assistant vice president for investor relations at AFG. “These sales occur for a number of reasons including estate planning or tax purposes.”

Kroger Co. executives have also been selling shares as the company’s stock soared to an all-time high of $43.85 on October 28. Seeking Alpha contributor Markus Aarnio wrote in mid-October that Kroger insiders had sold more than 750,000 shares between March and September. Kroger Senior Vice President Geoffrey Covert continued the trend in October by exercising options to purchase 95,000 Kroger shares at $19.94 and selling them at $40.87. The transaction, which netted $1.6 million for Covert, was one of nine transactions since Oct. 1 that produced a payday of at least $1 million for local executives.

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