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The iShares Dow Jones U.S. Industrial Sector Index ETF (NYSEARCA:IYJ) was trading as low as $28.58 in March 2009. The index is currently trading at $83.21, or 191.1% above the low made in March 2009.

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In this article, I will feature two industrial goods companies that have seen intensive insider selling during the last 30 days. 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%.

1. Raytheon Company (NYSE:RTN) provides electronics, mission systems integration, and other capabilities in the areas of sensing, effects, and command, control, communications, and intelligence systems, as well as a range of mission support services in the United States and internationally.

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Insider selling by insider (last 30 days)

  • Lynn Dugle sold 15,000 shares on June 20 pursuant to a Rule 10b5-1 trading plan. Lynn Dugle currently holds 58,603 shares or less than 0.1% of the company. Lynn Dugle is a Raytheon Company vice president and president of Raytheon Intelligence, Information and Services.
  • David Wajsgras sold 34,263 shares on June 17 pursuant to a Rule 10b5-1 trading plan. David Wajsgras currently holds 104,475 shares or less than 0.1% of the company. David Wajsgras is senior vice president and chief financial officer of Raytheon Company.
  • Jay Stephens sold 19,507 shares on June 17 pursuant to a Rule 10b5-1 trading plan. Jay Stephens currently holds 133,601 shares or less than 0.1% of the company. Jay Stephens is senior vice president, general counsel and secretary of Raytheon Company.
  • Richard Goglia sold 3,483 shares on June 5 pursuant to a Rule 10b5-1 trading plan. Richard Goglia currently holds 29,435 shares or less than 0.1% of the company. Richard Goglia is vice president and treasurer of Raytheon Company.
  • Richard Yuse sold 6,818 shares on June 3 pursuant to a Rule 10b5-1 trading plan. Richard Yuse currently holds 52,741 shares or less than 0.1% of the company. Richard Yuse is a Raytheon Company vice president and president of Raytheon Space and Airborne Systems.
  • Michael Wood sold 7,355 shares on June 3 pursuant to a Rule 10b5-1 trading plan. Michael Wood currently holds 23,797 shares or less than 0.1% of the company. Michael Wood is vice president, controller and chief accounting officer of Raytheon Company.
  • William Swanson sold 41,094 shares on June 3 pursuant to a Rule 10b5-1 trading plan. William Swanson currently holds 653,564 shares or 0.2% of the company. William Swanson is Chairman and CEO of Raytheon Company.
  • Taylor Lawrence sold 4,015 shares on June 3 pursuant to a Rule 10b5-1 trading plan. Taylor Lawrence currently holds 81,768 shares or less than 0.1% of the company. Taylor Lawrence is a Raytheon Company vice president and president of its Missile Systems business, a position he assumed in July 2008.

Insider selling by calendar month

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

MonthInsider selling / sharesInsider buying / shares
June 2013131,5350
May 201300
April 201320,0000
March 201310,0000
February 201388,3580
January 20136,0000

The month of June 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$5.9 billion
Net income$488 million
Total bookings$3.6 billion
Cash$4.0 billion
Debt$4.7 billion

Outlook

The company's guidance for 2013 is as follows:

Revenue$23.2-$23.7 billion
Adjusted EPS$5.75-$5.90

Competition

Raytheon's competitors include The Boeing Company (NYSE:BA), Lockheed Martin Corporation (NYSE:LMT) and Northrop Grumman Corporation (NYSE:NOC).

CompanyRTNBALMTNOC
Market Cap:21.15B78.04B34.13B19.55B
Employees:67,800174,400120,00068,100
Qtrly Rev Growth (yoy):-0.01-0.03-0.02-0.02
Revenue:24.36B81.21B46.96B25.12B
Gross Margin:0.220.160.090.22
EBITDA:3.34B7.80B5.28B3.59B
Operating Margin:0.120.070.090.12
Net Income:1.89B4.08B2.84B1.96B
EPS:5.705.338.667.88
P/E:11.4319.2712.3910.54
PEG (5 yr expected):1.941.131.62-4.40
P/S:0.860.950.720.77

Raytheon's P/S ratio is the second highest among these four companies.

My analysis

There have been eight different insiders selling the shares and there have not been any insiders buying the shares during the past 30 days. The company has an insider ownership of 0.50%. There are seven analyst buy ratings, 13 neutral ratings and one sell rating with an average target price of $62.94. The stock is trading at a P/E ratio of 11.43 and a forward P/E ratio of 11.70. The company has a book value of $25.32 per share and the stock has a dividend yield of 3.39%. Before shorting 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. Sun Hydraulics Corporation (NASDAQ:SNHY) designs, manufactures, and sells screw-in hydraulic cartridge valves and manifolds used in hydraulic systems to industrial and mobile customers worldwide.

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Insider selling by insider (last 30 days)

  • Wolfgang Dangel sold 625 shares on June 28 and currently holds zero shares of the company. Wolfgang Dangel serves as a director of the company.
  • Christine Koski sold 17,249 shares on June 10-25 and currently controls 4,347,823 shares or 16.6% of the company. Christine Koski serves as a director of the company.
  • Marc Bertoneche sold 2,000 shares on June 10 and currently holds 15,274 shares or less than 0.1% of the company. Marc Bertoneche serves as a director of the company.

Insider selling by calendar month

Here is a table of Sun Hydraulics' insider trading activity by calendar month.

MonthInsider selling / sharesInsider buying / shares
June 201319,8740
May 201384,2260
April 201319,4870
March 2013186,3500
February 201316,4200
January 201323,5800

There have been 349,937 shares sold and zero shares purchased by the insiders this year.

Financials

The company reported the first-quarter financial results on May 6 with the following highlights:

Revenue$51.1 million
Net income$9.6 million
Cash$75.9 million

Outlook

Second quarter 2013 revenues are expected to be approximately $55 million, down approximately 4% from the second quarter of 2012, but up 8% from the first quarter of 2013. Earnings per share are estimated to be $0.41 to $0.43 compared to $0.43 in the same period a year ago.

Competition

Sun Hydraulics' competitors include Parker-Hannifin Corporation (NYSE:PH) and Servotronics (NYSEMKT:SVT). Here is a table comparing these companies.

CompanySNHYPHSVT
Market Cap:842.67M14.23B17.22M
Employees:87059,331229
Qtrly Rev Growth (yoy):-0.08-0.03-0.09
Revenue:200.15M13.00B29.78M
Gross Margin:0.390.230.27
EBITDA:60.27M1.77B2.84M
Operating Margin:0.270.110.07
Net Income:36.35M979.23M1.55M
EPS:1.406.430.20
P/E:23.0114.8439.55
PEG (5 yr expected):1.742.12N/A
P/S:4.211.100.57

Sun Hydraulics' P/S ratio is higher than its direct competitors'.

My analysis

There have been three different insiders selling the shares and there have not been any insiders buying the shares during the past 30 days. The stock is trading at a P/E ratio of 23.01 and a forward P/E ratio of 18.34. The company has a book value of $6.21 per share and the stock has a dividend yield of 1.12%. Before shorting 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 relatively high P/S ratio and the intensive insider selling activity.

Source: 2 Industrial Goods Companies With Recent Intensive Insider Selling