In this article, I will feature one healthcare stock that has seen intensive insider selling during the last 30 days. Intensive insider selling can be defined by the following three criteria:
- The stock was sold by three or more insiders within one month.
- The stock was not purchased by any insiders in the month of intensive selling.
- At least two sellers decreased their holdings by more than 10%.
Varian Medical Systems (VAR) designs, manufactures, sells, and services medical devices and software for treating cancer and other medical conditions with radiotherapy, radiosurgery, proton therapy, and brachytherapy worldwide.
Insider selling during the last 30 days
Here is a table of Varian's insider-trading activity during the last 30 days by insider.
|Name||Title||Trade Date||Shares Sold||Rule 10b5-1||Current Ownership||Decrease In Ownership|
|Kolleen Kennedy||SVP||Jan 9||775||Yes||6,236 shares + 17,065 options||3.2%|
|Elisha Finney||CFO||Jan 2||24,321||Yes||26,434 shares + 36,000 options||28.0%|
|Richard Levy||Director||Jan 2||20,000||Yes||28,907 shares + 45,000 options||21.3%|
|John Kuo||SVP||Dec 30||3,027||Yes||15,257 shares + 6,662 options||12.1%|
|Clarence Verhoef||SVP||Dec 23||1,297||Yes||1,908 shares||40.5%|
There have been 49,420 shares sold by insiders during the last 30 days. All these shares were sold pursuant to a Rule 10b5-1 plan.
SEC Rule 10b5-1 is a regulation enacted by the United States Securities and Exchange Commission (SEC) in 2000. The SEC states that Rule 10b5-1 was enacted in order to resolve an unsettled issue over the definition of insider trading, which is prohibited by SEC Rule 10b-5. After Rule 10b5-1 was enacted, the SEC staff publicly took the position that canceling a planned trade made under the safe harbor does not constitute insider trading, even if the person was aware of the inside information when canceling the trade. This staff interpretation raises the possibility that executives can exploit this safe harbor by entering into 10b5-1 trading plans before they have inside information while retaining the option to later cancel those plans based on inside information.
For example, a CEO of a company could call a broker on January 1 and enter into a plan to sell a particular quantity of shares of his company's stock on March 1, find out terrible news about his company on February 1 that will not become public until April 1, and then go forward with the March 1 sale anyway, saving himself from losing money when the bad news becomes public. Under the terms of Rule 10b5-1(b) this is insider trading because the CEO "was aware" of the inside information when he made the trade. But he can assert an affirmative defense under Rule 10b5-1(c), because he planned the trade before he learned the inside information.
In general, it is a safer way for an insider to sell shares pursuant to a Rule 10b5-1 trading plan than without it.
Insider selling by calendar month
Here is a table of Varian's insider-trading activity by calendar month.
|Month||Insider selling / shares||Insider buying / shares|
There have been 886,812 shares sold, and there have been zero shares purchased by insiders since January 2013. The month of December has seen the most insider selling.
Varian reported the fiscal 2013 full-year, which ended September 27, financial results on October 23 with the following highlights:
|Net income||$438.2 million|
(Source: Earnings presentation)
Varian's guidance is as follows:
(Source: Earnings presentation)
Varian has the second-highest P/S ratio among these three companies. In Accuray, there have been 27,793 shares sold, and there have been 120,000 shares purchased by insiders since January 2013. Only Varian has seen intensive insider selling during the last 30 days.
There have been five different insiders selling Varian, and there have not been any insiders buying Varian during the last 30 days. Four of these five insiders decreased their holdings by more than 10%. Varian has an insider ownership of 0.10%.
Before entering short Varian, 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.