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The basic materials sector has been the worst-performing group year to date with a loss of 0.6%.


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In this article, I will feature two basic materials 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. Monsanto Company (MON) provides agricultural products for farmers worldwide.


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Insider selling by insider (last 30 days)

  • Gerald Steiner sold 12,293 shares on July 19 pursuant to a Rule 10b5-1 trading plan. Gerald Steiner currently holds 41,728 shares and 10,647 options or less than 0.1% of the company. Gerald Steiner is Executive Vice President, Sustainability & Corporate Affairs.
  • Steven Mizell sold 37,080 shares on July 1-10 and currently holds 44,252 shares or less than 0.1% of the company. Steven Mizell is Executive Vice President, Human Resources.
  • Tom Hartley sold 6,000 shares on July 9 pursuant to a Rule 10b5-1 trading plan. Tom Hartley currently holds 8,772 shares and 5,860 options or less than 0.1% of the company. Tom Hartley is Vice President and Treasurer.
  • Janet Holloway sold 10,700 shares on July 8 pursuant to a Rule 10b5-1 trading plan. Janet Holloway currently holds 27,546 shares or less than 0.1% of the company. Janet Holloway is Senior Vice President, Chief of Staff and Community Relations.
  • Hugh Grant sold 40,000 shares on July 3 pursuant to a Rule 10b5-1 trading plan. Hugh Grant currently holds 380,882 shares or less than 0.1% of the company. Hugh Grant is Chairman and Chief Executive Officer.

Insider selling by calendar month

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

Month Insider selling / shares Insider buying / shares
July 2013 106,073 0
June 2013 0 0
May 2013 112,086 0
April 2013 411,899 0
March 2013 0 0
February 2013 0 0
January 2013 139,637 0

There have been 769,695 shares sold and there have been zero shares purchased by the insiders this year.

Financials

The company reported the fiscal 2013 third-quarter, which ended May 31, financial results on June 26 with the following highlights:

Revenue $4.2 billion
Net income $909 million
Cash $3.1 billion
Debt $2.2 billion

Outlook

The company's fiscal 2013 earnings per share guidance is in the range of $4.50 to $4.55 on an ongoing basis, with mid-teens ongoing earnings growth anticipated for fiscal year 2014. The company expects 2013 earnings per share on an as-reported basis to be in the range of $4.54 to $4.59.


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Competition

The global market for the products of Monsanto's Seeds and Genomics segment is competitive, and the competition has intensified. Both Monsanto's row crops and vegetable seed businesses compete with numerous multinational agrichemical and seed marketers globally and with hundreds of smaller companies regionally. With the exception of competitors in Monsanto's Seminis and De Ruiter vegetable seed business, most of Monsanto's seed competitors are also licensees of Monsanto's germplasm or biotechnology traits. In certain countries, Monsanto also compete with government-owned seed companies. Monsanto's biotechnology traits compete as a system with other practices, including the application of agricultural chemicals, and traits developed by other companies. Monsanto's weed- and insect-control systems compete with chemical and seed products produced by other agrichemical and seed marketers. Competition for the discovery of new traits based on biotechnology or genomics is likely to come from major global agrichemical companies, smaller biotechnology research companies and institutions, state-funded programs and academic institutions.

My analysis

There have been five 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 0.30%. The stock is trading at a P/E ratio of 22.59 and a forward P/E ratio of 19.62. The company has a book value of $25.97 per share and the stock has a dividend yield of 1.44%. The stock has a $84 price target from the Point and Figure chart. I believe there is an opportunity for a short entry with the $84 target price. I would place a stop loss at $109, which is the 5-year high. The two main reasons for the proposed short entry are the bearish Point and Figure chart and the intensive insider selling activity.

2. Renewable Energy Group (REGI) produces biodiesel in the United States.


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Insider selling by insider (last 30 days)

  • Usrg Holdco V, LLC sold 2,190,198 shares on June 26 - July 19 pursuant to a Rule 10b5-1 trading plan. Usrg Holdco V, LLC currently holds 2,103,867 shares or 6.9% of REG.
  • Gary Haer sold 12,000 shares on July 8 and currently holds 46,647 shares or 0.2% of the company. Gary Haer is Vice President, Sales and Marketing.
  • West Central Cooperative sold 244,070 shares on June 27 - July 8 pursuant to a Rule 10b5-1 trading plan. West Central Cooperative currently holds 3,157,883 shares or 10.3% of REG.

Insider selling by calendar month

Here is a table of Renewable Energy Group's insider trading activity by calendar month.

Month Insider selling / shares Insider buying / shares
July 2013 1,840,786 0
June 2013 1,012,079 0
May 2013 863,579 0
April 2013 155,800 0
March 2013 0 2,800
February 2013 0 0
January 2013 0 0

There have been 3,872,244 shares sold and there have been 2,800 shares purchased by the insiders this year.

Financials

The company reported the first-quarter financial results on May 1 with the following highlights:

Revenue $339.3 million
Net income $38.4 million
Cash $49.0 million
Debt $63.7 million
Book value $10.18 per share

Outlook

In the second quarter the company expects to sell between 55 million and 65 million gallons. The company expects adjusted EBITDA to range between $35 million and $50 million for the quarter.


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Competition

Renewable Energy Group's competitors include Archer Daniels Midland Company (ADM) and BP plc (BP). Here is a table comparing these companies.

Company REGI ADM BP
Market Cap: 429.70M 23.77B 138.67B
Employees: 279 30,600 85,700
Qtrly Rev Growth (yoy): 0.80 0.03 -0.01
Revenue: 1.17B 91.13B 374.81B
Gross Margin: 0.11 0.04 0.11
EBITDA: 96.78M 2.55B 28.68B
Operating Margin: 0.08 0.02 0.04
Net Income: 41.87M 1.24B 22.68B
EPS: 1.41 1.89 7.10
P/E: 9.97 19.11 6.11
PEG (5 yr expected): 0.33 1.79 1.71
P/S: 0.37 0.26 0.37

Renewable Energy Group's P/S ratio is in line with 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 9.97 and a forward P/E ratio of 9.56. The company has a book value of $10.18 per share. Before entering short this stock, I would like to get a bearish confirmation from the Point and Figure chart. The main reason for the proposed short entry is the intensive insider selling activity.

Source: 2 Basic Materials Stocks With Recent Intensive Insider Selling