Reading - Companies Rush to Sell Shares While They Can - company insiders have continued to sell shares at a torrid pace - http://j.mp/LO8Dr
North American companies are flocking to sell shares this week, signaling to some investors the U.S. stock market may be close to sputtering after a long rally.
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On Tuesday and Wednesday, at least 15 public companies announced plans to issue a total of some $7 billion of shares, including a $3 billion issue by Canadian gold producer Barrick Gold.
September is on pace to be the busiest month for secondary issuance since May, which to some portfolio managers is a sign companies are taking advantage of the market while they still can.
"Companies are feeling there are dark clouds on the horizon, so why not issue now?" said Matt McCormick, a portfolio manager at Bahl & Gaynor Investment Counsel in Cincinnati.
The Dow Jones Industrial Average index has risen more than 40 percent since lows hit in early March, but a flood secondary stock offerings have squelched rallies in places such as Hong Kong.
Alibaba and Lenovo Group both placed shares in Hong Kong, pulling the broader market lower on Wednesday.
Experts expect 14 new share issues, that will raise a total of HK$70 billion ($9 billion) to enter that market in September.
U.S. capital raising reached a crescendo in May 2009, the all-time busiest month in the United States for follow-on share issues, with a total of $45.3 billion, led by banks.
As financial institutions stopped issuing shares, other sectors failed to step into the breach and secondary offerings dropped to $11.3 billion in August.
This week's large follow-on offerings include Cemex, the world's No. 3 cement maker, which plans to sell $1.8 billion of shares to pay down some of the $15 billion in debt it recently restructured to avoid defaulting.
Barrick Gold said it would issue $3 billion in stock and buy back all of its fixed-price gold hedges and a portfolio of its floating hedges. It said it will issue 81.2 million shares for $36.95 apiece.
Rising volumes of secondary issuance come as initial public offerings globally also rise, with multibillion dollar IPOs in Brazil and China.
"Any time the stock market rallies with the vociferous move that this one has had, you're going to get people hitting the window (of opportunity)," said Jeffrey Saut, chief investment strategist, Raymond James Financial, in St. Petersburg, Florida.
Six IPOs are set to price in the United States the week of Sept. 21 in what will likely be the busiest since Dec. 2007.
Getting Out While You Can
In another sign investors may be questioning how long the market's rally will last, company insiders have continued to sell shares at a torrid pace in recent weeks, in an effort to lock in profits before the markets fall.
"This is the most bearish period we've seen for insider sentiment since the second quarter of 2007," said Ben Silverman, director of research at InsiderScore.com.
Silverman said that, while the ratio of selling of shares to buying has fallen from August peaks, it remains high by historical standards.
Both insider sales and companies selling shares in the secondary market can be a bearish sign, said Walter Todd, a portfolio manager at Greenwood Capital Associates, but high levels of insider sales are particularly worrisome.
"Insiders have better information than you do and history would suggest that, when you get higher insider selling, it's not a great harbinger for the future," Todd added.