A study (pdf) titled "Predictive and Statistical Properties of Insider Trading" by James H. Lorie and Victor Niederhoffer reached the following conclusion:
Insiders tend to sell more than usual before price decreases.
In the study intensive insider selling was defined by the following three criteria:
- The stock was sold by three or more insiders within one month.
- The stock was purchased by no insiders in the month of intensive selling.
- At least two sellers decreased their holdings by more than 10 per cent.
The stocks meeting these three criteria underperformed the market during the next six months period following "intensive" insider selling.
In this article I will feature five stocks that met these three criteria of intensive insider selling during the month of November.
1. The Sherwin-Williams Company (SHW) is a global leader in the manufacture, development, distribution, and sale of coatings and related products to professional, industrial, commercial, and retail customers. The company manufactures products under well-known brands such as Sherwin-Williams, Dutch Boy, Krylon, Minwax, Thompson's Water Seal, and many more. With global headquarters in Cleveland, Ohio, Sherwin-Williams branded products are sold exclusively through a chain of more than 4,000 company-operated stores and facilities, while the company's other brands are sold through leading mass merchandisers, home centers, independent paint dealers, hardware stores, automotive retailers, and industrial distributors. The Sherwin-Williams Global Finishes Group distributes a wide range of products in more than 109 countries around the world.
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Insider sells
- George Heath sold 15,500 shares on November 26 and currently holds 27,289 shares of the company. George Heath is President, Global Finishes Group.
- Robert Davisson sold 13,000 shares on November 21 and currently holds 24,045 shares of the company. Robert Davisson is President Paint Stores Group.
- Sean Hennessy sold 38,419 shares on November 21 and currently holds 72,981 shares of the company. Sean Hennessy is Senior Vice President, Finance and Chief Financial Officer of the company.
- Thomas Hopkins sold 16,152 shares on November 19 and currently holds 34,460 shares of the company. Thomas Hopkins is Senior Vice President, Human Resources.
- Allen Mistysyn sold 5,398 shares on November 16 and currently holds 18,273 shares of the company. Allen Mistysyn is Vice President, Corporate Controller.
Financials
The company reported the third-quarter financial results on October 25 with the following highlights:
| Revenue | $2.6 billion |
| Net income | $235.0 million |
| Cash | $55.2 million |
| Debt | $965.4 million |
Outlook
Christopher M. Connor, Chairman and Chief Executive Officer, commented on October 25:
"For the fourth quarter, we anticipate our consolidated net sales will increase in the mid single digits compared to the fourth quarter of 2011. At that anticipated sales level, we estimate diluted net income per common share in the fourth quarter to be in the range of $.98 to $1.18 per share compared to $.14 per share earned in the fourth quarter of 2011. For the full year 2012, we expect consolidated net sales to increase above 2011 levels by a high single digit percentage. With annual sales at that level, we have raised our expectation for diluted net income per common share for 2012 to be in the range of $6.35 to $6.55 per share compared to $4.14 per share earned in 2011."
Competition
The Sherwin-Williams Company's competitors include E. I. du Pont de Nemours and Company (DD) and PPG Industries (PPG). Here is a table comparing these companies.
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The Sherwin-Williams Company is trading above the industry average P/S ratio.
My analysis
The stock has a $196 price target from the Point and Figure chart. There have been five insider sell transactions and there have not been any insider buy transactions this month. There are four analyst buy ratings, nine neutral ratings and two sell ratings with a average target price of $146.86. The stock is trading at a P/E ratio of 28.53 and a forward P/E ratio of 20.17. The company has a book value of $17.25 per share and the stock has a 0.99% dividend yield. The stock could be a good short candidate after the $196 price target is hit.
2. HollyFrontier Corporation (HFC), headquartered in Dallas, Texas, is an independent petroleum refiner and marketer that produces high value light products such as gasoline, diesel fuel, jet fuel and other specialty products. HollyFrontier operates through its subsidiaries a 135,000 barrels per stream day [bpsd] refinery located in El Dorado, Kansas, a 125,000 bpsd refinery in Tulsa, Oklahoma, a 100,000 bpsd refinery located in Artesia, New Mexico, a 52,000 bpsd refinery located in Cheyenne, Wyoming and a 31,000 bpsd refinery in Woods Cross, Utah. HollyFrontier markets its refined products principally in the Southwest U.S., the Rocky Mountains extending into the Pacific Northwest and in other neighboring Plains states. A subsidiary of HollyFrontier also owns a 44 percent interest (including the 2 percent general partner interest) in Holly Energy Partners, L.P.
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Insider sells
- Matthew Clifton sold 150,000 shares on November 26 and currently holds 495,686 shares of the company. Matthew Clifton announced on November 15 that he will retire as Executive Chairman of HollyFrontier Corporation on January 1, 2013.
- Michael Jennings sold 22,836 shares on November 27 and currently holds 427,578 shares of the company. Michael Jennings is Chief Executive Officer and President of the company.
- Denise McWatters sold 8,654 shares on November 19 and currently holds 30,112 shares of the company. Ms. McWatters has served as Vice President, General Counsel and Secretary of the company since May 2008.
- James Lee sold 25,000 shares on November 19 and currently holds 50,012 shares of the company. James Lee serves as a director of the company.
Financials
The company reported the third-quarter financial results on November 7 with the following highlights:
| Revenue | $5.2 billion |
| Net income | $600.4 million |
| Cash | $2.3 billion |
| Debt | $1.3 billion |
Outlook
HollyFrontier's President & CEO, Mike Jennings, commented on November 7:
"Looking forward, we believe that the structural crude advantages currently driving our strong operating margins will continue to positively impact our operating income, allowing us to continue to pay both regular and special dividends. We remain focused on increasing total shareholder return while maintaining a strong balance sheet."
Competition
HollyFrontier Corporation's competitors include Exxon Mobil Corporation (XOM), Valero Energy Corporation (VLO) and Western Refining (WNR). Here is a table comparing these companies.
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HollyFrontier Corporation is trading above the industry average P/S ratio.
My analysis
The stock has a $55 price target from the Point and Figure chart. There have been four insider sell transactions and there have not been any insider buy transactions this month. There are 11 analyst buy ratings, seven neutral ratings and 0 sell ratings with a average target price of $41.95. The stock is trading at a P/E ratio of 6.00 and a forward P/E ratio of 7.89. The company has a book value of $28.31 per share and the stock has a 1.78% dividend yield. The stock could be a good short candidate after the $55 price target is hit.
3. O'Reilly Automotive (ORLY) is one of the largest specialty retailers of automotive aftermarket parts, tools, supplies, equipment and accessories in the United States, serving both the do-it-yourself and professional service provider markets. Founded in 1957 by the O'Reilly family, the company operated 3,896 stores in 39 states as of September 30, 2012.
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Insider sells
- Rosalie O'Reilly Wooten sold 20,000 shares on November 15-23 and currently holds 425,147 shares of the company. Rosalie O'Reilly Wooten has been a director of the company since 1993.
- Thomas McFall sold 25,000 shares on November 23 and currently holds 4,630 shares of the company. Thomas McFall is Executive Vice President of Finance and Chief Financial Officer of the company.
- David O'Reilly sold 57,500 shares on November 14-15 and currently holds 287,204 shares of the company. David O'Reilly is the Chairman of the Board.
- John Murphy sold 2,000 shares on November 13 and currently holds 3,654 shares of the company. John Murphy has been a director of the company since 2004.
- Paul Lederer sold 4,200 shares on November 1 and currently holds 10,654 shares of the company. Paul Lederer has been a director of the company since 2001.
Financials
The company reported the third-quarter financial results on October 24 with the following highlights:
| Revenue | $1.60 billion |
| Net income | $159 million |
| Cash | $422.7 million |
| Debt | $1.1 billion |
Outlook
The company gave the following outlook for the fourth quarter and full-year 2012:
| Q4/2012 | Full-year 2012 | |
| Revenue | $1.46 billion to $1.51 billion | $6.15 billion to $6.20 billion |
| Diluted earnings per share | $1.03 to $1.07 | $4.64 to $4.68 |
Competition
O'Reilly Automotive's competitors include Advance Auto Parts (AAP), AutoZone (AZO) and Genuine Parts Company (GPC). Here is a table comparing these companies.
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O'Reilly Automotive is trading above the industry average P/S ratio.
My analysis
The stock has a $107 price target from the Point and Figure chart. There have been seven insider sell transactions and there have not been any insider buy transactions this month. There are seven analyst buy ratings, five neutral ratings and 0 sell ratings with a average target price of $95.10. The stock is trading at a P/E ratio of 20.24 and a forward P/E ratio of 16.94. The company has a book value of $19.46 per share. The stock could be a good short candidate after the $107 price target is hit.
4. Yelp Inc. (YELP) connects people with great local businesses. The company's users have contributed more than 33 million cumulative reviews of almost every type of local business, from restaurants, boutiques and salons to dentists, mechanics, plumbers and more. These reviews are written by people using Yelp to share their everyday local business experiences, giving voice to consumers and bringing "word of mouth" online. The information these reviews provide is valuable for consumers and businesses alike. Approximately 84 million unique visitors used the company's website, and Yelp's mobile application was used on approximately 8.2 million unique mobile devices, on a monthly average basis during the quarter ended September 30, 2012. Businesses, both small and large, use the company's platform to engage with consumers at the critical moment when they are deciding where to spend their money. Yelp's business revolves around three key constituencies: the contributors who write reviews, the consumers who read them and the local businesses that they describe. Yelp communities have taken root in major metros across the US, Canada, UK, Ireland, France, Germany, Austria, The Netherlands, Spain, Italy, Switzerland, Belgium, Australia, Sweden, Denmark, Norway, Finland, Singapore and Poland.
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Insider sells
- Keith Rabois sold 50,000 shares on November 19-23 and currently holds 55,665 shares of the company. Keith Rabois has served on the company's board of directors since September 2005.
- Geoffrey Donaker sold 35,000 shares on November 12 pursuant to a duly adopted 10b5-1 trading plan and currently holds 218,268 stock options. Geoffrey Donaker joined Yelp in 2005 to head business development and has been COO since 2006. In his current role, Geoffrey oversees the company's business operations including sales, marketing and administration.
- Jeremy Stoppelman sold 10,365 shares on November 2 pursuant to a Rule 10b5-1 trading plan. Jeremy Stoppelman is Co-Founder, Chief Executive Officer and Director of Yelp.
Financials
The company reported the third-quarter financial results on November 1 with the following highlights:
| Revenue | $36.4 million |
| Net loss | $2.0 million |
| Cash | $123.1 million |
Outlook
As of November 1, Yelp provided guidance for its fourth quarter of 2012 and updated its full year 2012 revenue and adjusted EBITDA guidance.
- For the fourth quarter of 2012, net revenue is expected to be in the range of $40.0 million - $40.5 million representing growth of approximately 62% compared to the fourth quarter of 2011. Adjusted EBITDA is expected to be in the range of $1.25 million - $1.5 million, which excludes a one-time charge of approximately $1 million related to the Qype acquisition.
- For the full year of 2012, net revenue is expected to be in the range of $136.4 million - $136.9 million, representing growth of approximately 64% compared to the full year of 2011. Adjusted EBITDA is expected to be in the range of $3.5 million to $4.0 million, which excludes a one-time charge of $1 million related to the Qype acquisition.
Competition
One of Yelp's competitors is Yahoo (YHOO). Here is a table comparing these two companies.
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Yelp is trading above the industry average P/S ratio.
My analysis
The stock has a $5 price target from the Point and Figure chart. There have been four insider sell transactions and there have not been any insider buy transactions this month. There is one analyst buy rating, eight neutral ratings and 0 sell ratings with a average target price of $26.71. The company has a book value of $2.29 per share. The stock could be a good short candidate below the 50 day moving average with a stop loss at $30.
5. Regeneron (REGN) is a fully integrated biopharmaceutical company that discovers, invents, develops, manufactures, and commercializes medicines for the treatment of serious medical conditions. Regeneron markets three products in the United States, Eylea (aflibercept) Injection, Zaltrap (ziv-aflibercept) Injection for Intravenous Infusion, and Arcalyst (rilonacept) Injection for Subcutaneous Use; Zaltrap is co-commercialized with Sanofi (SNY). Phase 3 studies are in progress with Eylea in two additional indications and with product candidates sarilumab and REGN727. Regeneron has active research and development programs in many disease areas, including ophthalmology, inflammation, cancer, and hypercholesterolemia.
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Insider sells
- Roy Vagelos sold 97,253 shares on November 19-26 pursuant to a Rule 10b5-1(c) trading plan and currently holds 142,580 shares of the company. Roy Vagelos is the Chairman of the Board.
- Charles Baker sold 15,000 shares on November 26 pursuant to a Rule 10b5-1(c) trading plan and currently holds 9,590 shares of the company. Charles Baker serves as a director of the company.
- Robert Terifay sold 9,745 shares on November 23 and currently holds 10,903 shares of the company. Robert Terifay has been Senior Vice President, Commercial since joining the company in February 2007.
- Neil Stahl sold 24,357 shares on November 21 and currently holds 64,600 shares of the company. Neil Stahl, Ph.D., has been Senior Vice President, Research and Development Sciences since January 2007.
- George Sing sold 10,000 shares on November 13-16 and currently holds 127,772 shares of the company. George Sing has been a director of the company since January 1988.
- Daniel Van Plew sold 18,741 shares on November 16 and currently holds 6,089 shares of the company. Daniel Van Plew has been Senior Vice President and General Manager, Industrial Operations and Product Supply since April 2008.
- Murray Goldberg sold 9,693 shares on November 13-14 pursuant to a plan intended to comply with Rule 10b5-1(c) and currently holds 89,537 shares of the company. Murray Goldberg has been Senior Vice President, Finance and Administration, Chief Financial Officer, Treasurer, and Assistant Secretary since December 2000.
- Michael Brown sold 7,000 shares on November 14 and currently holds 14,662 shares of the company. Michael Brown, M.D., has been a director of the company since June 1991.
- Peter Powchik sold 15,144 shares on November 8 and currently holds 16,522 shares of the company. Peter Powchik, M.D., has been Senior Vice President, Clinical Development since October 2006.
- Arthur Ryan sold 10,000 shares on November 1 and currently holds 40,355 shares of the company. Arthur Ryan has been a director of the company since January 2003.
Financials
The company reported the third-quarter financial results on October 24 with the following highlights:
| Revenue | $427.7 million |
| Net income | $191.5 million |
| Cash | $583.3 million |
Outlook
Leonard Schleifer, M.D., Ph.D., President and Chief Executive Officer of Regeneron, commented on October 24:
"The EYLEA launch continues to progress well and is driving strong sales and earnings growth. We now forecast 2012 U.S. EYLEA net product sales of $790 to $815 million. With the recent approval of EYLEA in the United States for the treatment of macular edema following central retinal vein occlusion [CRVO], and the anticipated launch beginning by the end of this year in Japan, Australia, and Europe, we expect EYLEA to continue to drive growth through 2013 and beyond. In addition, we and Sanofi have announced the roll-out of our broad Phase 3 ODYSSEY program for REGN727, our cholesterol-lowering PCSK9 antibody, and the Phase 3 program for sarilumab, our IL-6 receptor antibody, in rheumatoid arthritis."
News
Sanofi and Regeneron announced on November 16 that the Committee for Medicinal Products for Human Use [CHMP] of the European Medicines Agency [EMA] adopted a positive opinion and recommended the granting of marketing authorization for Zaltrap (ziv-aflibercept) Injection for Intravenous Infusion in combination with irinotecan/5-fluorouracil/folinic acid [FOLFIRI] chemotherapy in adults with metastatic colorectal cancer [mCRC] that is resistant to or has progressed after an oxaliplatin-containing regimen.
The European Commission now needs to ratify the positive opinion from CHMP to grant marketing authorization of Zaltrap in all 27 European Union member countries. A decision is expected from the European Commission in the first quarter of 2013. The CHMP opinion was based on data from the pivotal VELOUR trial.
Competition
Regeneron's competitors include Amgen (AMGN), Novartis (NVS) and Roche (RHHBY.OB). Here is a table comparing these companies.
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Regeneron is trading above the industry average P/S ratio.
My analysis
The stock has a $246 price target from the Point and Figure chart. There have been 12 insider sell transactions and there have not been any insider buy transactions this month. There are 11 analyst buy rating, nine neutral ratings and 0 sell ratings with a average target price of $118.47. The stock is trading at a P/E ratio of 80.32 and a forward P/E ratio of 35.65. The company has a book value of $8.35 per share. The stock could be a good short candidate after the $246 price target is hit.
Disclosure: I have no positions in any stocks mentioned, but may initiate a short position in YELP over the next 72 hours.
