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Based on my experience, following the trades of the insiders of public companies can be highly profitable. There have been studies made which show that when insiders sell a stock intensively, the stock is expected to underperform the market during the next six months following "intensive" insider selling.

Intensive insider selling can be defined by the following three criteria:

  1. The stock was sold by three or more insiders within one month.
  2. The stock was not purchased by any insiders in the month of intensive selling.
  3. At least two sellers decreased their holdings by more than 10 percent.

In this article, I will feature three stocks that met these three criteria of intensive insider selling during the last 30 days.

1. Avago Technologies (NASDAQ:AVGO) engages in the design, development, and supply of analog semiconductor devices with a focus on III-V based products. The company's product portfolio is extensive, and includes approximately 6,500 products in four primary target markets: wireless communications, wired infrastructure, industrial and automotive electronics, and consumer and computing peripherals. Applications for the company's products in these target markets include cellular phones, data networking, storage and telecommunications equipment, factory automation, power generation and alternative energy systems, displays, optical mice and printers.

(click images to enlarge)

Insider sells

  • Justine Lien sold 10,000 shares on December 26 and currently controls 22,543 shares or less than 0.1% of the company. Justine Lien has been a director of the company since June 2008.
  • KKR Fund Holdings sold 11,397,180 shares on December 12 pursuant to a public offering. KKR Fund Holdings currently holds zero shares of Avago.
  • Silver Lake (Offshore) Aiv Gp II Ltd sold 11,102,754 shares on December 12 pursuant to a public offering. Silver Lake (Offshore) Aiv Gp II Ltd currently controls 184,938 shares, or less than 0.1% of Avago.
  • Bryan Ingram sold 100,001 shares on December 10 and currently controls 125,000 shares, or less than 0.1% of the company. Bryan Ingram has served as the company's Senior Vice President and General Manager, Wireless Semiconductor Division, since November 2007.
  • Hock Tan sold 300,000 shares on December 12 pursuant to a public offering. Hock Tan currently controls 482,502 shares, or 0.2% of the company. Hock Tan has served as the company's President, Chief Executive Officer and a director since March 2006.

Financials

The company reported its full fiscal year 2012 (which ended on October 28) financial results on November 29 with the following highlights:

Revenue$2.36 billion
Net income$563 million
Cash$1,084 million

Outlook

The company's outlook for the first quarter fiscal 2013 is as follows:

Sequential change in Net RevenueDown 5% to 9%
Gross Margin47.5% plus/minus 1%
Operating expenses$151 million

Competition

Avago's competitors include Analog Devices (NASDAQ:ADI), Finisar (NASDAQ:FNSR) and RF Micro Devices (NASDAQ:RFMD). Here is a table comparing these companies.

CompanyAVGOADIFNSRRFMDIndustry
Market Cap:7.66B12.50B1.46B1.22B1.50B
Employees:N/A9,2008,9103,9862.14K
Qtrly Rev Growth (yoy):-0.01-0.03-0.04-0.140.35
Revenue:2.36B2.70B935.43M825.68M823.82M
Gross Margin:0.510.640.280.300.44
EBITDA:744.00M942.56M73.84M44.32M87.25M
Operating Margin:0.250.310.01-0.040.05
Net Income:563.00M651.24M21.00M-57.98MN/A
EPS:2.252.130.23-0.210.07
P/E:13.8419.4768.56N/A22.42
PEG (5 yr expected):1.0410.660.482.710.78
P/S:3.264.671.561.471.68

Avago is trading above the industry average P/S ratio, which could explain some of the insider selling.

My Analysis

The stock has a $26 price target from the Point and Figure chart, and is trading below the 200 day moving average. There have been five insider sell transactions, and there have not been any insider buy transactions during the last 30 days. There are 12 analyst buy ratings, three neutral ratings and 0 sell ratings, with a average target price of $40.38. The stock is trading at a P/E ratio of 13.84 and a forward P/E ratio of 10.25. The company has a book value of $9.87 per share, and the stock has a 2.18% dividend yield. The company's outlook for the first quarter is negative sequential revenue growth. There is an opportunity for a short entry with the $26 target price from the Point and Figure chart. I would place a stop loss at $36, which is the one month high and also above the 200 day moving average.

2. Sensata Technologies (NYSE:ST) develops, manufactures, and sells sensors and controls primarily in the Americas, the Asia Pacific, and Europe.

Insider sells

  • Thomas Wroe sold 13,610 shares on December 19 pursuant to a Rule 10b5-1 Sales Plan and 100,000 shares on December 17 pursuant to a public offering. Thomas Wroe currently controls 1,358,975 shares, or 0.8% of the company. Thomas Wroe is Chief Executive Officer of Sensata Technologies.
  • Bain Capital Investors sold 9,095,196 shares on December 17 pursuant to a public offering. Bain Capital Investors currently controls 79,969,512 shares, or 44.9% of Sensata Technologies.
  • Martha Sullivan sold 146,000 shares on December 17 pursuant to a public offering. Martha Sullivan currently controls 1,102,924 shares, or 0.6% of the company. Martha Sullivan was named President of the company in September 2010.
  • Jeffrey Cote sold 91,000 shares on December 17 pursuant to a public offering. Jeffrey Cote currently controls 750,566 shares, or 0.4% of the company. Jeffrey Cote is Executive Vice President and Chief Operating Officer of the company.
  • Geert Braaksma sold 5,580 shares on December 17 pursuant to a public offering. Geert Braaksma currently controls 7,620 shares, or less than 0.1% of the company. Geert Braaksma is Vice President, Sensors Europe.

Financials

The company reported its third-quarter financial results on October 23 with the following highlights:

Revenue$471.9 million
Net income$41.5 million
Cash$348.2 million
Debt$1.78 billion

Outlook

The company anticipates net revenue of $435 million to $455 million for the fourth quarter 2012. The company expects adjusted net income of $81 million to $89 million, or $0.45 to $0.49 per diluted share for the fourth quarter 2012.

Competition

Sensata Technologies' competitors include Denso Corp (OTCPK:DNZOY). Here is a table comparing these two companies.

CompanySTDNZOYIndustry
Market Cap:5.72B27.43B470.32M
Employees:11,400126,036988.00
Qtrly Rev Growth (yoy):-0.010.090.11
Revenue:1.92B44.20B522.07M
Gross Margin:0.350.160.24
EBITDA:518.18M5.62B20.00M
Operating Margin:0.170.080.04
Net Income:130.92M1.83BN/A
EPS:0.711.140.03
P/E:45.4214.9815.00
PEG (5 yr expected):1.100.831.03
P/S:2.970.630.63

Sensata Technologies is trading above the industry average P/S ratio, which could explain some of the insider selling.

My Analysis

The stock has a $48 price target from the Point and Figure chart. There have been 32 insider sell transactions, and there have not been any insider buy transactions during the past 12 months. There are two analyst buy ratings, three neutral ratings and 0 sell ratings, with an average target price of $34.67. The stock is trading at a P/E ratio of 45.42 and a forward P/E ratio of 14.42. The company has a book value of $6.57 per share. I am not currently planning to short the stock based on the bullish Point and Figure target price. Before entering short this stock, I would wait for a bearish confirmation from the Point and Figure chart.

3. KAR Auction Services (NYSE:KAR), through its subsidiaries, provides vehicle auction services.

Insider sells

  • Valueact Holdings sold 3,278,982 shares on December 11 pursuant to a secondary offering. Valueact Holdings currently controls 19,289,208 shares, or 14.1% of KAR Auction Services.
  • Goldman Sachs Group sold 3,934,778 shares on December 11 pursuant to a secondary offering. Goldman Sachs Group currently controls 23,147,052 shares or 16.9% of KAR Auction Services.
  • David Vignes sold 510 shares on December 11 pursuant to a secondary offering. David Vignes currently controls 8,000 shares, or less than 0.1% of the company. David Vignes is Executive Vice President of Enterprise Optimization at KAR Auction Services.
  • Benjamin Skuy sold 3,644 shares on December 11 pursuant to a secondary offering. Benjamin Skuy currently controls 26,436 shares, or less than 0.1% of the company. Benjamin Skuy is Executive Vice President of International Markets and Strategic Initiatives at KAR Auction Services.
  • Rebecca Polak sold 1,093 shares on December 11 pursuant to a secondary offering. Rebecca Polak currently controls 183,147 shares, or 0.1% of the company. Rebecca Polak is Executive Vice President, General Counsel and Secretary at KAR Auction Services.
  • Thomas O'Brien sold 4,058 shares on December 11 pursuant to a secondary offering. Thomas O'Brien currently controls 23,872 shares, or less than 0.1% of the company. Thomas O'Brien is Chief Executive Officer of Insurance Auto Auctions, one of the KAR Auction Services family of companies, and a Director of KAR Auction Services.
  • Eric Loughmiller sold 437 shares on December 11 pursuant to a secondary offering. Eric Loughmiller currently controls 15,473 shares, or less than 0.1% of the company. Eric Loughmiller is Vice President and Chief Financial Officer of KAR Auction Services.
  • Kelso Investment Associates VII sold 6,585,111 shares on December 11 pursuant to a secondary offering. Kelso Investment Associates VII currently controls 38,738,129 shares, or 28.3% of KAR Auction Services.
  • James Hallett sold 14,573 shares on December 11 pursuant to a secondary offering. James Hallett currently controls 235,727 shares or 0.2% of the company. James Hallett is chief executive officer and director of KAR Auction Services.
  • Brian Clingen sold 200,892 shares on December 11 pursuant to a secondary offering. Brian Clingen currently controls 1,181,788 shares or 0.9% of the company. Brian Clingen is Chairman of the Board and Director.
  • Thomas Caruso sold 729 shares on December 11 pursuant to a secondary offering. Thomas Caruso currently controls 514,091 shares, or 0.4% of the company. Thomas Caruso is Chief Executive Officer and President of ADESA, one of the companies within KAR Auction Services.
  • Warren Byrd sold 729 shares on December 11 pursuant to a secondary offering. Warren Byrd currently controls 200,171 shares, or 0.1% of the company. Warren Byrd is Executive Vice President of Corporate Development and Real Estate of KAR Auction Services.
  • Axle Holdings sold 3,970,267 shares on December 11 pursuant to a secondary offering. Axle Holdings currently controls 23,355,823 shares or 17.1% of KAR Auction Services.

Financials

The company reported its third-quarter financial results on November 6 with the following highlights:

Revenue$474.9 million
Net income$19.2 million
Cash$163.7 million
Debt$1,822.2 million

Outlook

KAR Auction Services expects 2012 Adjusted EBITDA of $500 million-$510 million. The company also expects net income per share of $0.63-$0.68 and adjusted net income per share of $1.00-$1.05.

Competition

KAR Auction Services' competitors include Comerica Incorporated (NYSE:CMA) and Copart (NASDAQ:CPRT). Here is a table comparing these companies.

CompanyKARCMACPRTIndustry
Market Cap:2.71B5.74B3.63B964.50M
Employees:8,4289,0372,9816.32K
Qtrly Rev Growth (yoy):0.060.020.060.05
Revenue:1.95B2.45B937.43M3.22B
Gross Margin:0.45N/A0.470.17
EBITDA:457.00MN/A344.47M193.39M
Operating Margin:0.140.330.330.04
Net Income:83.60M482.00M186.82MN/A
EPS:0.602.481.440.58
P/E:33.0312.1420.2115.03
PEG (5 yr expected):2.330.971.390.98
P/S:1.392.343.880.30

KAR Auction Services is trading above the industry average P/S ratio, which could explain some of the insider selling.

My Analysis

The stock has a $13.5 price target from the Point and Figure chart. There have been 13 insider sell transactions, and there have not been any insider buy transactions during the past 30 days. There are four analyst buy ratings, four neutral ratings and two sell ratings with a average target price of $20.00. The stock is trading at a P/E ratio of 33.03 and a forward P/E ratio of 16.80. The company has a book value of $10.57 per share, a 3.83% dividend yield. The stock is currently trading very close to its all-time highs. I am not currently planning to take a short position in the stock based on the bullish chart pattern. I would place this stock on a watch list for a possible short candidate at a later point. I am not recommending going long this stock, either, based on the insider trading activity.

Source: 3 Stocks With Recent Intensive Insider Selling