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The healthcare sector has been the best-performing sector year to date with a gain of 25.8%.

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In this article, I will feature two healthcare 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. Medtronic (NYSE:MDT) manufactures and sells device-based medical therapies worldwide.

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Insider selling by insider (last 30 days)

  • James Dallas sold 90,468 shares on July 1-11 and currently holds 93,060 shares or less than 0.1% of the company. James Dallas is a Senior Vice President at Medtronic.
  • Gary Ellis sold 32,602 shares on July 11 and currently holds 169,339 shares or less than 0.1% of the company. Gary Ellis was named Senior Vice President and Chief Financial Officer on May 1, 2005.
  • Christopher O'Connell sold 30,429 shares on July 11 and currently holds 117,220 shares or less than 0.1% of the company. Christopher O'Connell was named Executive Vice President and Group President in August, 2009.

Insider selling by calendar month

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

MonthInsider selling / sharesInsider buying / shares
July 2013153,4990
June 201300
May 201304,800
April 201300
March 201300
February 201300
January 201300

There have been 153,499 shares sold and there have been 4,800 shares purchased by the insiders this year.

Financials

The company reported the fiscal 2013 full-year, which ended April 26, financial results on May 21 with the following highlights:

Revenue$16.6 billion
Net income$3.5 billion
Cash$11.1 billion
Debt$10.7 billion

Outlook

In fiscal year 2014, the company expects full-year revenue growth in the range of 3 to 4 percent on a constant currency basis, and diluted EPS in the range of $3.80 to $3.85. After adjusting for certain one-time impacts to growth, the company indicated that this range implies annual diluted EPS growth in the range of 6 to 8 percent.

Competition

Medtronic competes in both the therapeutic and diagnostic medical markets in more than 140 countries throughout the world. These markets are characterized by rapid change resulting from technological advances and scientific discoveries. In the product lines in which Medtronic competes, Medtronic faces a mixture of competitors ranging from large manufacturers with multiple business lines to small manufacturers that offer a limited selection of products. In addition, Medtronic faces competition from providers of alternative medical therapies such as pharmaceutical companies.

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 company has an insider ownership of 0.20%. The stock is trading at a P/E ratio of 16.45 and a forward P/E ratio of 13.51. The company has a book value of $18.41 per share and the stock has a dividend yield of 2.01%. 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.

2. Illumina (NASDAQ:ILMN) develops, manufactures, and markets life science tools and integrated systems for the analysis of genetic variation and biological function in North America, Europe, Latin America, the Asia-Pacific, the Middle East, and South Africa.

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Insider selling by insider (last 30 days)

  • David Walt sold 9,600 shares on July 10-24 pursuant to a 10b5-1 plan. David Walt currently holds 946,488 shares or 0.8% of the company. David Walt is one of the founders and has been a director and Chairman of Scientific Advisory Board since June 1998.
  • Nicholas Naclerio sold 22,000 shares on July 15-24 pursuant to a 10b5-1 plan. Nicholas Naclerio currently holds 24,559 shares and 157,000 options or 0.1% of the company. Nicholas Naclerio is Senior Vice President, Corporate Development.
  • Gregory Heath sold 209,533 shares on July 24 pursuant to a 10b5-1 plan. Gregory Heath currently holds 26,740 shares and 20,625 options or less than 0.1% of the company. Gregory Heath is Senior Vice President & General Manager, Diagnostics.
  • Michel Bouchard sold 13,407 shares on July 10-24 pursuant to a 10b5-1 plan. Michel Bouchard currently holds 29,961 shares or less than 0.1% of the company. Michel Bouchard is Vice President, Finance.
  • Jay Flatley sold 20,000 shares on July 11 pursuant to a 10b5-1 plan. Jay Flatley currently holds 399,509 shares and 330,000 options or 0.6% of the company. Jay Flatley was appointed President and CEO of Illumina in 1999.
  • Mostafa Ronaghi sold 24,000 shares on July 11 pursuant to a 10b5-1 plan. Mostafa Ronaghi currently holds 30,051 shares and 198,000 options or 0.2% of the company. Mostafa Ronaghi is Senior Vice President & Chief Technology Officer.
  • Tristan Orpin sold 6,667 shares on July 9 pursuant to a 10b5-1 plan. Tristan Orpin currently holds 45,961 shares or less than 0.1% of the company. Tristan Orpin is Senior Vice President & Chief Commercial Officer.
  • Christian Henry sold 9,000 shares on July 9 pursuant to a 10b5-1 plan. Christian Henry currently holds 35,416 shares and 75,000 options or less than 0.1% of the company. Christian Henry is Senior Vice President & General Manager, Genomic Solutions.

Insider selling by calendar month

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

MonthInsider selling / sharesInsider buying / shares
July 2013314,2070
June 2013204,0680
May 2013179,1960
April 2013244,3970
March 201326,6010
February 201310,0000
January 2013100,5000

There have been 1,078,969 shares sold and there have been zero shares purchased by the insiders this year.

Financials

The company reported the second-quarter financial results on July 23 with the following highlights:

Revenue$346.1 million
Net income$35.9 million
Cash$1.1 billion
Debt$851.9 million

Outlook

For fiscal 2013 the company is projecting approximately 20% revenue growth and non-GAAP earnings per fully diluted share of $1.68 to $1.72, including the impact of the Verinata and Advanced Liquid Logic acquisitions.

Competition

Although Illumina believes that its products and services provide significant advantages over products and services currently available from other sources, it expects to continue to encounter intense competition from other companies that offer products and services for sequencing, SNP genotyping, gene expression, and molecular diagnostics markets. These include companies such as Affymetrix (NASDAQ:AFFX), Agilent Technologies (NYSE:A), General Electric Company (NYSE:GE), Life Technologies Corporation (NASDAQ:LIFE), Luminex Corporation (NASDAQ:LMNX), Pacific Biosciences of California (NASDAQ:PACB), QIAGEN N.V. (NASDAQ:QGEN) and Roche Diagnostics Corp. (OTCQX:RHHBY), among others.

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 1.50%. There are nine analyst buy ratings, 12 neutral ratings and zero sell ratings with an average target price of $77.34. The stock is trading at a P/E ratio of 98.12 and a forward P/E ratio of 40.06. The company has a book value of $10.60 per share. 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 the bearish analyst target prices and the intensive insider selling activity.

Source: 2 Healthcare Large Caps With Recent Intensive Insider Selling