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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. Seattle Genetics (SGEN) is a biotechnology company focused on the development and commercialization of monoclonal antibody-based therapies for the treatment of cancer. The company's lead program, Adcetris, received accelerated approval from the U.S. Food and Drug Administration in August 2011 for two indications. In addition, under a collaboration with Millennium: The Takeda Oncology Company, Adcetris received conditional approval from the European Commission in October 2012. Seattle Genetics also has three other clinical-stage antibody-drug conjugate [ADC] programs: SGN-75, ASG-5ME and ASG-22ME. Seattle Genetics has collaborations for its ADC technology with a number of leading biotechnology and pharmaceutical companies, including Abbott (ABT), Agensys (an affiliate of Astellas (ALPMF.PK)), Bayer (BAYZF.PK), Celldex Therapeutics (CLDX), Daiichi Sankyo (DSKYF.PK), Genentech, GlaxoSmithKline (GSK), Millennium, Pfizer (PFE) and Progenics (PGNX), as well as ADC co-development agreements with Agensys and Genmab (GNMSF.PK).

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Insider sells

  • Eric Dobmeier sold 100,983 shares on December 17 - January 4 pursuant to a Rule 10b5-1 trading plan adopted on November 14, 2012. Eric Dobmeier currently holds 122,846 shares or 0.1% of the company. Eric Dobmeier serves as Chief Operating Officer of the company.
  • Clay Siegall sold 8,249 shares on January 2-4 pursuant to a Rule 10b5-1 trading plan adopted by Dr. Siegall and described in a Form 8-K filed on June 15, 2012. Clay Siegall currently holds 1,170,961 shares or 1.0% of the company. Clay Siegall co-founded Seattle Genetics in 1998 and is the company's President, Chief Executive Officer and Chairman of the Board of Directors.
  • Thomas Reynolds sold 66,588 shares on December 6-10 and currently holds 57,601 shares or less than 0.1% of the company. Thomas Reynolds is Chief Medical Officer of the company.

Financials

The company reported the third-quarter financial results on November 7 with the following highlights:

Revenue$49.8 million
Net loss$13.7 million
Cash$313.9 million

Outlook

Seattle Genetics anticipates that revenues from Adcetris net product sales will be in the range of $132 million to $137 million in 2012.

Competition

Seattle Genetics' competitors include ImmunoGen (IMGN) and Pfizer. Here is a table comparing these companies.

CompanySGENIMGNPFEIndustry
Market Cap:2.97B1.14B191.13B108.30M
Employees:48324598,80074.00
Qtrly Rev Growth (yoy):1.410.61-0.160.19
Revenue:195.79M17.91M62.22B15.74M
Gross Margin:0.11N/A0.800.68
EBITDA:-59.29M-74.39M26.77B-6.09M
Operating Margin:-0.33-4.410.31-0.97
Net Income:-70.35M-79.03M9.75BN/A
EPS:-0.60-1.011.28-0.15
P/E:N/AN/A20.3321.08
PEG (5 yr expected):N/AN/A5.640.02
P/S:14.8863.923.068.40

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

My analysis

The stock has a $14 price target from the Point and Figure chart. There have been 42 insider sell transactions, and there have not been any insider buy transactions during the past 12 months. There are six analyst buy ratings, four neutral ratings and 10 sell ratings, with a average target price of $18.93. I believe there is an opportunity for a short entry with the $14 target price from the Point and Figure chart. I would place a stop loss at $30, which is the all time high. The four main reasons for the short entry are high P/S ratio, bearish Point and Figure chart, insider selling activity and bearish analyst estimates.

2. Vocera (VCRA) provides mobile communication solutions addressing critical communication challenges facing hospitals today.

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Insider sells

  • Jay Spitzen sold 350 shares on January 2 pursuant to a Rule 10b5-1 trading plan adopted on August 28, 2012. Jay Spitzen currently holds 26,153 shares or 0.1% of the company. Dr. Jay Spitzen has served as General Counsel since April 2011 and as Corporate Secretary since June 2011.
  • Brent Lang sold 2,500 shares on Janurary 2 pursuant to a Rule 10b5-1 trading plan adopted on August 27, 2012. Brent Lang currently controls 82,342 shares or 0.3% of the company. Brent Lang is President and Chief Operating Officer of the company.
  • Robert Flury sold 600 shares on Janurary 2 pursuant to a Rule 10b5-1 trading plan adopted on August 27, 2012. Robert Flury currently controls 64,778 shares or 0.3% of the company. Robert Flury has served as Vice President of Sales since August 2007.
  • Robert Zollars sold 49,200 shares on December 10-31 pursuant to a Rule 10b5-1 trading plan adopted on August 27, 2012. Robert Zollars currently controls 1,033,860 shares or 4.3% of the company. Robert Zollars is Chairman and CEO of the company.
  • Hany Nada sold 389,659 shares on December 4-20 pursuant to a Rule 10b5-1 trading plan adopted on November 26, 2012. Hany Nada currently controls 1,168,977 shares or 4.9% of the company. Hany Nada serves as a director of the company.
  • Victoria Perkins sold 4,500 shares on December 13 pursuant to a Rule 10b5-1 trading plan adopted on August 27, 2012. Victoria Perkins currently holds 33,182 shares or 0.1% of the company. Victoria Perkins has served as Vice President of Services since December 2005.

Financials

The company reported the third-quarter financial results on November 5 with the following highlights:

Revenue$26.0 million
Net income$1.7 million
Cash$121 million

Outlook

For the full year 2012, the company's revenue guidance is between $100 million and $102 million. For the full year 2012, the company expects GAAP earnings per share between $0.09 and $0.11, non-GAAP earnings per share between $0.33 and $0.35, and non-GAAP Adjusted EBITDA between $10.0 million and $11.0 million.

Competition

Vocera's competitors include Motorola Solutions (MSI), Nokia (NOK) and Research In Motion (RIMM). Here is a table comparing these companies.

CompanyVCRAMSINOKRIMMIndustry
Market Cap:615.30M15.79B15.51B6.15B188.90M
Employees:32621,000105,26516,500698.00
Qtrly Rev Growth (yoy):0.270.03-0.19-0.470.14
Revenue:95.67M8.56B41.61B12.59B193.68M
Gross Margin:0.620.500.270.310.35
EBITDA:6.50M1.53B-911.47M1.55B4.70M
Operating Margin:0.040.15-0.06-0.030.01
Net Income:546.00K719.00M-5.67B-847.00MN/A
EPS:0.042.37-1.53-1.67N/A
P/E:693.5123.77N/AN/A15.01
PEG (5 yr expected):2.711.3411.89-1.380.81
P/S:6.351.840.370.470.99

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

My analysis

The stock has a $13 price target from the Point and Figure chart. There have been eight insider sell transactions, and there have not been any insider buy transactions during the last 30 days. The stock is trading at a P/E ratio of 693.51 and a forward P/E ratio of 71.28. The company has a book value of $5.00 per share. There is an opportunity for a short entry with the $13 target price from the Point and Figure chart. I would place a stop loss at $32, which is the all time high. The three main reasons for the short entry are high P/S ratio, bearish Point and Figure chart and insider selling activity.

3. YUM! Brands (YUM), together with its subsidiaries, operates quick service restaurants in the United States and internationally.

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Insider sells

  • David Novak sold 540,600 shares on December 10 and currently holds 282,164 shares or less than 0.1% of the company. David Novak became Chairman of the Board on January 1, 2001, and Chief Executive Officer of Yum! on January 1, 2000.
  • Jonathan Blum sold 6,200 shares on December 10 - January 2 pursuant to a Rule 10b5-1 trading plan. Jonathan Blum currently controls 41,477 shares or less than 0.1% of the company. Jonathan Blum is Senior Vice President, Chief Public Affairs and Global Nutrition Officer for Yum! Brands.
  • Jingshyh Su sold 98,950 shares on December 10-28 pursuant to a Rule 10b5-1 trading plan. Jingshyh Su currently controls 351,632 shares or less than 0.1% of the company. Jingshyh Su became Chairman & CEO of Yum! Brands China Division in May 2010, maintaining his position as Vice Chairman of the Board at Yum! Brands.
  • Richard Carucci sold 54,200 shares on December 13 and currently controls 26,823 shares or less than 0.1% of the company. Richard Carucci was appointed President of Yum! Brands in May 2012 after serving as the company's Chief Financial Officer since 2005.
  • Massimo Ferragamo sold 3,647 shares on December 12 and currently holds 56,829 shares or less than 0.1% of the company. Massimo Ferragamo serves as a director of the company.
  • Anne Byerlein sold 42,098 shares on December 10 and currently holds 9,126 shares or less than 0.1% of the company. Anne Byerlein is Chief People Officer for Yum! Brands.
  • Bonnie Hill sold 2,070 shares on December 10 and currently holds 1,748 shares or less than 0.1% of the company. Bonnie Hill serves as a director of the company.

Financials

The company reported the third-quarter financial results on October 9 with the following highlights:

Revenue$3.57 billion
Net income$471 million
Cash$942 million
Debt$3.1 billion

Outlook

The company expects 2012 to be the eleventh consecutive year of delivering at least 13% EPS growth, prior to special items. The company expects at least 10% EPS growth in 2013 and well into the future.

Competition

YUM! Brands' competitors include McDonald's (MCD). Here is a table comparing these two companies.

CompanyYUMMCDIndustry
Market Cap:30.87B90.21B614.21M
Employees:60,580420,0008.75K
Qtrly Rev Growth (yoy):0.09-0.000.09
Revenue:13.59B27.44B428.10M
Gross Margin:0.270.390.32
EBITDA:2.84B9.78B51.20M
Operating Margin:0.160.300.08
Net Income:1.62B5.45BN/A
EPS:3.405.310.38
P/E:20.0916.9219.23
PEG (5 yr expected):1.471.971.39
P/S:2.253.321.42

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

My analysis

The stock has a $57 price target from the Point and Figure chart. There have been nine insider sell transactions, and there have not been any insider buy transactions during the last 30 days. There are 10 analyst buy ratings, three neutral ratings and one sell rating, with a average target price of $72.75. The stock is trading at a P/E ratio of 20.09 and a forward P/E ratio of 18.57. The company has a book value of $4.86 per share and the stock has a 1.96% dividend yield. There is an opportunity for a short entry with the $57 target price from the Point and Figure chart. I would place a stop loss at $75, which is the all time high. The three main reasons for the short entry are high P/S ratio, bearish Point and Figure chart and insider selling activity.

Source: 3 Stocks With Recent Intensive Insider Selling