Qualcomm: 3 Different Insiders Have Sold Shares This Year

Feb. 6.14 | About: Qualcomm Inc. (QCOM)

In this article, I will feature one tech stock that has 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%.

Qualcomm (NASDAQ:QCOM) designs, develops, manufactures, and markets digital telecommunications products and services.

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Insider selling during the last 30 days

Here is a table of Qualcomm'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
Margaret Johnson EVP Jan 13-Feb 3 4,800 Yes 24,320 shares + 20,325 options 9.7%
Paul Jacobs CEO Jan 9-Feb 3 219,392 Yes 1,375,714 shares + 275,000 options 11.7%
Matthew Grob CTO Jan 10 10,000 Yes 23,138 shares 30.2%
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There have been 234,192 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 Qualcomm's insider-trading activity by calendar month.

Month Insider selling / shares Insider buying / shares
February 2014 72,400 0
January 2014 169,592 0
December 2013 175,191 0
November 2013 880,701 0
October 2013 165,009 0
September 2013 379,485 0
August 2013 182,869 0
July 2013 193,088 0
June 2013 144,783 0
May 2013 335,723 0
April 2013 429,250 0
March 2013 412,241 0
February 2013 304,057 0
January 2013 626,003 0
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There have been 4,397,992 shares sold, and there have been zero shares purchased by insiders since January 2013.

Financials

Qualcomm reported the fiscal 2014 first-quarter, which ended December 29, financial results on January 29 with the following highlights:

Revenue $6.6 billion
Net income $1.9 billion
Cash $31.6 billion
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(Source: Earnings presentation)

Outlook

Qualcomm's guidance is as follows:

Q2/FY14 FY14
Revenue $6.1-$6.7 billion $26.0-$27.5 billion
GAAP Diluted EPS $0.99-$1.09 $4.33-$4.53
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(Source: Earnings presentation)

Competition

Qualcomm's competitors include Intel (NASDAQ:INTC), and Samsung (OTC:SSNLF). Here is a table comparing these companies.

Company QCOM INTC SSNLF
Market Cap: 122.35B 117.94B 166.88B
Employees: 31,000 105,000 N/A
Qtrly Rev Growth (yoy): 0.10 -0.05 0.06
Revenue: 25.47B 52.32B 205.82B
Gross Margin: 0.60 0.59 N/A
EBITDA: 8.58B 20.19B 47.02B
Operating Margin: 0.30 0.23 0.16
Net Income: 6.85B 9.48B 27.42B
EPS: 3.91 1.85 209.52
P/E: 18.52 12.82 6.09
PEG (5 yr expected): 0.86 1.11 N/A
P/S: 4.81 2.25 0.81
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Qualcomm has the highest P/S ratio among these three companies.

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

Month Insider selling / shares Insider buying / shares
January 2014 729,140 0
December 2013 84,012 0
November 2013 76,427 0
October 2013 893,261 0
September 2013 103,555 0
August 2013 614,086 0
July 2013 207,946 0
June 2013 698,883 0
May 2013 407,416 0
April 2013 110,461 0
March 2013 87,692 0
February 2013 38,928 0
January 2013 47,247 0
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In Intel, there have been 4,099,054 shares sold, and there have been zero shares purchased by insiders since January 2013. Intel has also seen intensive insider selling during the last 30 days.

Conclusion

There have been three different insiders selling Qualcomm, and there have not been any insiders buying Qualcomm during the last 30 days. Two of these three insiders decreased their holdings by more than 10%. Qualcomm has an insider ownership of 1.25%.

Before going short Qualcomm, 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.

Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within 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.