Buy Hold Sell: 3 stocks directors have been selling (and 2 big buys)

Millions of dollars of shares are sold and bought each month by company directors. Often, investors watch these transactions as a signal that leadership teams know something we don't. So should you buy or sell if leadership teams are too? 

Firstly, there are a variety of reasons (or maybe excuses) why a director may sell stock in their company. Take tax reasons, for example, or divorce settlements (half of all first marriages end in divorce, after all), or just because they need the cash - to purchase a new home or holiday house, for instance.

Of course, it could also mean these directors think their company's shares have run too hard - or that there are troubles on the horizon that the rest of the market doesn't know about, yet. 

Interestingly, FirstLinks found that companies tended to perform worse if there had been director selling over a six-month period than companies where no director sales had occurred. 

That said, there's only one reason a director would buy shares, and that's because they think their stock's share price is about to go up. 

So in this episode, Centennial Asset Management's Matthew Kidman was joined by Auscap Asset Management's Will Mumford and IML's Michael O'Neill for their analysis of three stocks where director selling has occurred over the past month. 

Plus, to even the score, they also name one stock they have been buying on the back of reporting season. 

Note: This episode was filmed on Wednesday 6 September 2023. You can watch the video, listen to a podcast, or read an edited transcript below.

Edited Transcript  

And that's what we're going to concentrate on now - the companies and directors that have been selling stock and whether that's a good thing or whether we can see through it into the future. So to discuss the stock selling today, we have Will Mumford from Auscap and we've got Michael O'Neill from IML. 

Matthew Kidman: So let's turn to blood. Gold to blood. CSL is obviously one of the really big companies in Australia and it has been a tremendous performer, but it has been a bit tougher more recently. Some of its older directors who have been around for a long time were selling some stock. Buy, hold or sell?

Matthew Kidman: So this company's been a core portfolio holding for most Australians over the last decade. Insiders are selling a bit of stock, should we trim as well? Buy, hold, or sell?

Matthew Kidman: Okay. Those are stocks where directors have been selling. Give us one that you've been buying that you like at the moment.

Will's Pick: Mineral Resources (ASX: MIN)

Will Mumford: One that we've been buying is Mineral Resources and for MinRes, the story isn't about whether directors have been buying or selling, it's about the size of their stake. So Chris Ellison (Founder, MD) has a $1.6 billion stake within MinRes and that tells you a few things. Firstly, it tells you he knows what he's doing. He's become a billionaire through the performance of MinRes. Secondly, it's going to give you better alignment than the design of the best long-term incentive (LTI) scheme ever could. So MinRes has again and again come up with opportunistic and entrepreneurial transactions that you just don't see at many other ASX-listed companies. So it's a good reminder to back founder-led businesses.

Matthew Kidman: Okay, Michael, what have you got? Something that you've been buying as opposed to what these directors have been selling?

Michael's Pick: Steadfast (ASX: SDF)

Michael O'Neill: I'll give you one that we've been buying and the chairman has been buying, which is Steadfast. Frank O'Halloran's been buying. I think he bought 55,000 shares. So this is a company that's just provided guidance for 10% to 15% earnings growth for the coming year. That's a level that it's generally achieved through the decade that's passed since its IPO. What gives them confidence in giving that guidance is organic growth through market share in their insurance broking network, roll-up acquisitions in the network and the hard insurance market that we're in today, which isn't going away anytime soon. You could also have another catalyst at their upcoming AGM in October when they start to talk about the US strategy in more detail.