Insider Selling During Share Buybacks? Something Stinks…

Steve McDonald By Steve McDonald
Bond Strategist, The Oxford Club

Slap In The Face Award


The cheek smacker this week goes out to the 10 CEOs who have been selling their stock in their own companies while doing stock buybacks.

Something stinks!

Stock buybacks are designed to reduce the number of outstanding shares so there are fewer shares for the same earnings. They increase the earnings per share. The purpose is to boost the market value of shares.

And it works! When a company does a buyback, the price of its shares go up.

So I have to ask, why are 10 CEOs selling their shares during their companies’ buybacks?

The CEOs and their companies are on the screen now…

As you can see, insider stock sales range between $11 million of Boeing Co. (NYSE: BA) and $42 million of PepsiCo (NYSE: PEP).

Now, insiders sell stocks for a variety of reasons, but it seems just a little fishy that these 10 would be doing it during a period when the company was buying back stock to benefit stockholders.

This type of activity may make investors think twice about owning the stock, especially if the company is buying back shares at record prices – as so many companies have been doing during this bull market.

But as long as they report it to the SEC, there is nothing illegal about insiders selling stock… even during a buyback.

But it isn’t the best sign. I’d steer clear!

Good investing,