Seeking Alpha
Long/short equity, insider ownership
Profile| Send Message|
( followers)  

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.

(click to enlarge)

Insider selling during the last 30 days

Here is a table of Qualcomm's insider-trading activity during the last 30 days by insider.

NameTitleTrade DateShares SoldRule 10b5-1Current OwnershipDecrease In Ownership
Margaret JohnsonEVPJan 13-Feb 34,800Yes24,320 shares + 20,325 options9.7%
Paul JacobsCEOJan 9-Feb 3219,392Yes1,375,714 shares + 275,000 options11.7%
Matthew GrobCTOJan 1010,000Yes23,138 shares30.2%

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.

MonthInsider selling / sharesInsider buying / shares
February 201472,4000
January 2014169,5920
December 2013175,1910
November 2013880,7010
October 2013165,0090
September 2013379,4850
August 2013182,8690
July 2013193,0880
June 2013144,7830
May 2013335,7230
April 2013429,2500
March 2013412,2410
February 2013304,0570
January 2013626,0030

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

(click to enlarge)

(Source: Earnings presentation)

Outlook

Qualcomm's guidance is as follows:

Q2/FY14FY14
Revenue$6.1-$6.7 billion$26.0-$27.5 billion
GAAP Diluted EPS$0.99-$1.09$4.33-$4.53

(click to enlarge)

(Source: Earnings presentation)

Competition

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

CompanyQCOMINTCSSNLF
Market Cap:122.35B117.94B166.88B
Employees:31,000105,000N/A
Qtrly Rev Growth (yoy):0.10-0.050.06
Revenue:25.47B52.32B205.82B
Gross Margin:0.600.59N/A
EBITDA:8.58B20.19B47.02B
Operating Margin:0.300.230.16
Net Income:6.85B9.48B27.42B
EPS:3.911.85209.52
P/E:18.5212.826.09
PEG (5 yr expected):0.861.11N/A
P/S:4.812.250.81

Qualcomm has the highest P/S ratio among these three companies.

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

MonthInsider selling / sharesInsider buying / shares
January 2014729,1400
December 201384,0120
November 201376,4270
October 2013893,2610
September 2013103,5550
August 2013614,0860
July 2013207,9460
June 2013698,8830
May 2013407,4160
April 2013110,4610
March 201387,6920
February 201338,9280
January 201347,2470

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.

Source: Qualcomm: 3 Different Insiders Have Sold Shares This Year