One screening tool I like to use is tracking heavy insider selling. The reasoning is simple in that while insiders might sell a million or two worth of stock for living expenses, diversification purposes, etc., but when there is a considerably higher amount, alarm bells go off to indicate that perhaps the future is not as bright as before. Below are several stocks that have seen heavy insider selling in excess of at least $45 million.
Dollar General (DG) is a nationwide discount retailer with approximately $16 billion in annual sales and a market capitalization over $17 billion. The company has been doing well in the currently tough economic times as its business is largely countercyclical, but board director Adrian Jones seems to think the stock is moving lower in the near future. The director sold a massive 975,177 shares on April 22, equating to approximately $49 million worth of stock. This was after cutting his ownership stake by more than 50% recently on April 3 when selling $320 million worth of stock. This could be an ominous sign and might be due to the improving economy, where Dollar General is less of a beneficiary than higher-end retailers. Moreover, the company has considerably lower margins than its competitors Family Dollar (FDO) and Dollar Tree (DLTR). Lastly, the company pays no dividend, and that's always a worry for me after seeing so many management blunders over the years when presented with excess cash.
If I'm looking for a discount retailer, I think Wal-Mart (WMT) is more appealing. Dow component and ubiquitous Wal-Mart is a behemoth with a presence around the globe. The company has a massive annual revenue base approaching $500 billion and market capitalization at $260 billion. Operationally, the company has been great, exceeding consensus estimates in each of the last four quarters. It is trading at a reasonable 15.5x trailing and 13.5 forward P/E and just over .5x price to sales. In addition, it shows a strong 9% return on assets and 22% return on equity. Lastly, and perhaps most importantly, the stock is yielding a consistently growing 2.4% dividend. At just a 32% payout ratio and the company continuing to fire on all cylinders, it is reasonable to expect the dividend to continue being raised and as a result the stock moving higher.
Microsoft (MSFT) is, of course, most well-known for its ubiquitous presence in the personal computer space -- and specifically its operating system. The company is a juggernaut with over $75 billion in annual sales and a massive $265 billion market capitalization. Nonetheless, it seems as if Co-founder and former CEO Bill Gates seems to think its best days are behind it, selling a considerable 12,605,493 shares collectively from April 23-24 equating to over $390 million worth of stock. This is on top of the 7.4 million shares he had just sold the day before, further illustrating his bearishness on the company. The stock has grossly underperformed the major indices in the past one and five years, essentially going nowhere while the major indices are up over 10% in both of those time frames (it has been a sideways market for quite some time now).
Nonetheless, while Gates looks to put money into his great charitable foundation and/or other holdings such as Ecolab (ECL) and AutoNation (AN), Microsoft still looks attractively priced to me. Operationally, it has exceeded consensus estimates in three of the last four quarters. It trades for a relatively cheap 16x trailing and 10x forward P/E. Lastly, and perhaps most importantly, it pays a consistently growing 2.9% dividend. With well over $50 billion in net cash and a paltry 44% payout ratio, investors can expect that dividend to be safe. Therefore, I think even with the headwinds of continual selling by Gates, the company is still worth putting on one's radar.
If one is looking to diversify a position in Microsoft, fellow tech titans Intel (INTC) and Apple (AAPL) are worth a look. Intel, like Microsoft, gets the lion's share of its profits from the dying personal computing space. In fact, its microprocessors are in well over 80% of all computers worldwide while its No. 2 competitor, Advanced Micro Devices (AMD), continues to struggle. Nonetheless, as the company looks to further diversify its revenue base, Wall Street seems to be pricing it too cheaply. The stock is at a comparatively cheap 11.5x trailing and forward P/E of just 5x enterprise value/EBITDA. Moreover, the company has exceeded consensus estimates in three of the last four quarters. Lastly, it sports a consistently growing and very strong 4% yield, doubling the average Fortune 500 company's yield of 2%. At just a 44% payout ratio, matching Microsoft above, expect that to be safe.
Amazingly, just about six months ago Apple was the most valuable company of any industry worldwide as it had a market capitalization of approximately $700 billion. The company has come down considerably since that time, approximately 40%, on worries that it is not the same innovative company and has plateaued. While I definitely do not think that the company is as strong now without its visionary leader Steve Jobs, I do think Apple is attractively priced. Operationally the company has exceeded consensus estimates in each of the last two quarters, which is one positive note. It is trading at a relatively cheap 9.5x trailing and forward P/E, as well as just 5.5x enterprise value/EBITDA. Lastly -- and what I find most appealing -- is both its massive cash position now at approximately $150 billion, translating to well over one-third of the total company's market capitalization, and its growing dividend. In fact, with the most recent raise, it now sits at approximately 3%. With management communicating that it is dedicated to returning money to shareholders, expect that to continue.