2 Industrial Goods And 1 Basic Materials Stocks With Recent Intensive Insider Selling

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 |  Includes: RS, SHW, WCN
by: Markus Aarnio

There was intensive insider selling in Vocera (NYSE:VCRA) in September 2012, November 2012, and December 2012. The stock peaked at $32.97 on September 25, 2012 and has plunged all the way to $11.99 as of May 3, or 63.6% below the September, 2012, all time high.

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With this episode in mind, I screened for stocks which have seen recent 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%.

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

1. The Sherwin-Williams Company (NYSE:SHW) engages in the development, manufacture, distribution, and sale of paints, coatings, and related products to professional, industrial, commercial, and retail customers primarily in North America, South America, Europe, Asia, and the Caribbean region.

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Insider selling by insider (last 30 days)

  • Robert Davisson sold 10,191 shares on May 2 and currently holds 23,445 shares or less than 0.1% of the company. Robert Davisson is President Paint Stores Group.
  • Allen Mistysyn sold 6,498 shares on April 26 and currently holds 18,959 shares or less than 0.1% of the company. Allen Mistysyn is Vice President, Corporate Controller.
  • Susan Kropf sold 1,000 shares on April 23 and currently holds 12,656 shares or less than 0.1% of the company. Susan Kropf serves as a director of the company.

Insider selling by calendar month

Here is a table of The Sherwin-Williams' insider trading activity by calendar month.

Month Insider selling / shares Insider buying / shares
May 2013 10,191 0
April 2013 7,498 0
March 2013 62,929 0
February 2013 8,424 0
January 2013 0 0
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There have been 89,042 shares sold and zero shares purchased this year.

Financials

The company reported the first-quarter financial results on April 18 with the following highlights:

Revenue $2.2 billion
Net income $116.2 million
Cash $613.9 million
Debt $1.7 billion
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Outlook

Christopher M. Connor, Chairman and Chief Executive Officer, commented on April 18:

"For the second quarter, we anticipate our consolidated net sales will increase five to nine percent compared to last year's second quarter. At that anticipated sales level, we estimate diluted net income per common share in the second quarter to be in the range of $2.50 to $2.60 per share compared to $2.17 per share earned in the second quarter of 2012. For the full year 2013, we expect consolidated net sales to increase above 2012 levels by a mid single digit percentage. With annual sales at that level, we are reaffirming our guidance that diluted net income per common share for 2013 is expected to be in the range of $7.45 to $7.55 per share compared to $6.02 per share earned in 2012."

Competition

The Sherwin-Williams' competitors include E. I. du Pont de Nemours and Company (NYSE:DD) and PPG Industries (NYSE:PPG). Here is a table comparing these companies.

Company SHW DD PPG
Market Cap: 19.14B 49.83B 21.73B
Employees: 34,154 70,000 39,200
Qtrly Rev Growth (yoy): 0.01 -0.08 -0.11
Revenue: 9.57B 35.27B 15.20B
Gross Margin: 0.45 0.29 0.40
EBITDA: 1.16B 6.11B 2.37B
Operating Margin: 0.10 0.13 0.13
Net Income: 642.03M 2.44B 1.21B
EPS: 6.18 4.93 21.69
P/E: 30.36 10.99 7.01
PEG (5 yr expected): 1.56 1.94 2.15
P/S: 1.96 1.40 1.40
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The Sherwin-Williams is trading at a higher P/S ratio than its direct competitors, which could explain some of the insider selling.

My analysis

There have been three insider sell transactions and there have not been any insider buy transactions during the last 30 days. There are five analyst buy ratings, 12 neutral ratings and two sell ratings with an average target price of $179.21. The stock is trading at a P/E ratio of 30.36 and a forward P/E ratio of 19.34. The company has a book value of $17.57 per share and the stock has a dividend yield of 1.09%. Before entering short this stock, I would like to get a bearish confirmation from the Point and Figure chart. The two main reasons for the proposed short entry are bearish analyst target prices and the intensive insider selling activity.

2. Waste Connections (NYSE:WCN), an integrated solid waste services company, provides solid waste collection, transfer, disposal, and recycling services.

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Insider selling by insider (last 30 days)

  • Michael Harlan sold 4,000 shares on May 1 and currently holds 25,576 shares or less than 0.1% of the company. Michael Harlan serves as a director of the company.
  • Richard Wojahn sold 1,000 shares on May 1 and currently holds 12,204 shares or less than 0.1% of the company. Richard Wojahn is Vice President, Business Development.
  • Robert Davis sold 10,000 shares on April 29 and currently holds 4,976 shares or less than 0.1% of the company. Robert Davis serves as a director of the company.
  • James Little sold 11,548 shares on April 29 and currently holds 40,344 shares or less than 0.1% of the company. James Little is Senior Vice President, Engineering and Disposal.

Insider selling by calendar month

Here is a table of Waste Connections' insider trading activity by calendar month.

Month Insider selling / shares Insider buying / shares
May 2013 5,000 0
April 2013 21,548 0
March 2013 11,388 0
February 2013 8,750 0
January 2013 0 0
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There have been 46,686 shares sold and zero shares purchased this year.

Financials

The company reported the first-quarter financial results on April 24 with the following highlights:

Revenue $449.9 million
Net income $41.6 million
Cash $14.3 million
Debt $2.2 billion
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Outlook

The company's outlook for the second quarter is as follows:

Revenue $480-$482 million
Adjusted EBITDA $164-$165 million
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Competition

Waste Connections' competitors include Casella Waste Systems (NASDAQ:CWST), Republic Services (NYSE:RSG) and Waste Management (NYSE:WM). Here is a table comparing these companies.

Company WCN CWST RSG WM Industry Average (Waste Management)
Market Cap: 4.69B 157.79M 12.48B 19.20B 4.64B
Employees: 6,606 1,800 30,000 43,500 6.61K
Qtrly Rev Growth (yoy): 0.20 0.00 0.01 0.01 0.16
Revenue: 1.74B 465.71M 8.13B 13.69B 1.74B
Gross Margin: 0.43 0.29 0.38 0.35 0.39
EBITDA: 555.48M 75.43M 2.30B 3.31B 555.48M
Operating Margin: 0.20 0.04 0.17 0.15 0.19
Net Income: 169.35M -89.87M 553.50M 814.00M N/A
EPS: 1.37 -2.90 1.51 1.75 0.78
P/E: 27.66 N/A 22.83 23.50 27.35
PEG (5 yr expected): 1.93 -0.28 3.05 2.55 1.90
P/S: 2.67 0.34 1.52 1.39 2.67
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Waste Connections' P/S ratio is in line with the industry average but above its direct competitors.

My analysis

There have been four 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 27.66 and a forward P/E ratio of 18.79. The company has a book value of $15.27 per share and the stock has a dividend yield of 1.06%. Before entering short this stock, I would like to get a bearish confirmation from the Point and Figure chart. The main reasons for the proposed short entry is the intensive insider selling activity.

3. Reliance Steel & Aluminum Co. (NYSE:RS) operates as a metals service center company.

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Insider selling by insider (last 30 days)

  • David Hannah sold 50,000 shares on May 2 and currently controls 271,642 shares or 0.4% of the company. David Hannah is Chairman of the Board and Chief Executive Officer.
  • Andrew Sharkey sold 2,000 shares on May 1 and currently holds 2,406 shares or less than 0.1% of the company. Andrew Sharkey serves as a director of the company.
  • Franklin Johnson sold 18,000 shares on April 30 and currently holds 11,703 shares or less than 0.1% of the company. Franklin Johnson serves as a director of the company.
  • Sheldon Tenenbaum sold 8,000 shares on April 29 and currently holds 15,625 shares or less than 0.1% of the company. Sheldon Tenenbaum is Senior Vice President, Supplier Development.

Insider selling by calendar month

Here is a table of Reliance's insider trading activity by calendar month.

Month Insider selling / shares Insider buying / shares
May 2013 52,000 0
April 2013 26,000 0
March 2013 0 0
February 2013 0 0
January 2013 0 0
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The month of May has seen the most insider selling this year.

Financials

The company reported the first-quarter financial results on April 25 with the following highlights:

Revenue $2.0 billion
Net income $83.7 million
Cash $100.1 million
Debt $1.2 billion
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Outlook

The company expects global economic and political uncertainty will continue to present challenges to industrial growth in the second quarter of 2013 and expects only slight improvements in demand with a weak pricing environment persisting. As a result, for the second quarter ending June 30, 2013, management currently expects earnings per diluted share to be in the range of $1.10 to $1.20, which includes the incremental earnings from Metals USA beginning April 12, 2013 and excludes any one-time deal related costs.

Competition

Reliance's competitors include Worthington Industries (NYSE:WOR). Here is a table comparing these two companies.

Company RS WOR Industry Average (Metal Fabrication)
Market Cap: 5.09B 2.36B 401.79M
Employees: 11,600 10,500 1.70K
Qtrly Rev Growth (yoy): -0.12 0.01 0.21
Revenue: 8.18B 2.66B 1.20B
Gross Margin: 0.26 0.15 0.14
EBITDA: 761.70M 220.60M 50.67M
Operating Margin: 0.07 0.06 0.00
Net Income: 371.00M 155.00M N/A
EPS: 4.88 2.21 0.03
P/E: 13.61 15.00 3.60
PEG (5 yr expected): 1.76 1.25 N/A
P/S: 0.60 0.85 0.34
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Reliance's valuation is in line with its direct competitor.

My analysis

There have been four 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 13.61 and a forward P/E ratio of 9.39. The company has a book value of $47.57 per share and the stock has a dividend yield of 1.81%. I believe there is an opportunity for a short entry with the $49 price target from the Point and Figure chart. I would place a stop loss at $72.57, which is the 52 week high. The two main reasons for the proposed short entry are the bearish Point and Figure chart and the intensive insider selling activity.

Disclosure: I have no positions in any stocks mentioned, but may initiate a short position in RS over the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.