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Welcome to edition twenty seven of Insider Weekends. Insider buying increased last week with insiders purchasing $83.4 million of their stock when compared to $12.9 million in the week prior. Selling also increased with insiders selling $1.75 billion worth of stock when compared to $1.27 billion in the week prior.

Sell/Buy Ratio:

The insider Sell/Buy ratio is calculated by dividing the total insider sales in a given week by total insider buying in that week. The adjusted ratio for last week plunged to 20.92. In other words, insiders sold almost 21 times as much stock as they purchased. The Sell/Buy ratio this week compares favorably with the week prior when the ratio stood at 98.13. The spike in insider purchases was driven primarily by large purchases of Scientific Games (SGMS) by one of its directors and additional funding provided by Mr. Carl Berg for both Valence (VLNC) and MoSys (MOSY). We are calculating an adjusted ratio by removing transactions by funds and companies and trying as best as possible only to retain information about insiders and 10% owners who are not funds or companies.

Insider Sell Buy Ratio December 10, 2010

Insider Sell Buy Ratio December 10, 2010

Note: As mentioned in the first post in this series Introduction to Insider Weekends, certain industries have their preferred metrics such as same store sales for retailers, funds from operations (FFO) for REITs and revenue per available room (RevPAR) for hotels that provide a better basis for comparison than simple valuation metrics. However metrics like Price/Earnings, Price/Sales and Enterprise Value/EBITDA included below should provide a good starting point for analyzing the majority of stocks.

Notable Insider Buys:

1. Scientific Games Corporation (SGMS): $9.385

Shares of this producer of lottery systems were purchases by four insiders:

  • Director Ronald Perelman acquired 4,315,000 shares, paying $8.7 per share for a total amount of $37.6 million. These shares were purchased indirectly through SGMS Acquisition Corp., SGMS Acquisition Two Corp. and MacAndrews & Forbes Holdings Inc.
  • Executive Vice Chairman David Kennedy acquired 65,000 shares, paying $8.16 per share for a total amount of $530,400
  • Director Barry Schwartz acquired 5,000 shares, paying $8.04 per share for a total amount of $40,200
  • Senior VP & CFO Jeff Lipkin acquired 2,000 shares, paying $7.99 per share for a total amount of $15,980

Scientific Games stands out for a couple of reasons. The cluster purchase by a number of insiders and the size of these purchases. With this purchase Mr. Perelman picked up more than 4% of the total outstanding stock and now owns almost 32% of the company. At first I thought this purchase was probably part of a secondary offering or debt conversion but there was nothing in the filing to indicate this was anything other than a regular purchase. Moreover the company has enough cash on the balance sheet to meet short-term liquidity needs.

The stock saw a nice 20% spike on Nov 30 after the former CEO who served from 1992 to 2008 was brought back in to run the company.

P/E: N/A Forward P/E: 24.7 Industry P/E: 13.12
P/S: 0.93 Price/Book: 1.36 EV/EBITDA: 9.76
Market Cap: $859.73M Avg. Daily Volume: 991,917 52 Week Range: $6.58 – $17.01

2. Valence Technology Inc. (VLNC): $1.38

Chairman Carl Berg acquired 3,759,789 shares of this battery technology company, paying $1.2 per share for a total amount of $4.5 million. Mr Berg increased his stake by 9.02% to 45.44 million shares with this purchase. Mr. Berg is both the founder and Chairman of Valence and has been on the board of directors since 1991. He put in $2 million of his money into Valence in September to prop up this company that has been losing money for several years. This $4.5 million appears to be another investment into the company but the filing did not indicate it as such.

The company saw a sharp increase in fiscal Q2 revenue which is up 278% YoY to $12.7 million. Gross margins improved and the operating loss narrowed but the company still lost $2.7 million in the quarter. The company expects fiscal Q3 revenue of $12 to $14 million. Its fiscal year runs from April to March. The company signed an agreement in September to supply batteries to UK based hybrid bus company Wrightbus worth $19 to $24 million over a period of 6 years. While revenue is ramping up, the company has a leveraged balance sheet and is still losing money.

P/E: N/A Forward P/E: N/A Industry P/E: 18.91
P/S: 7.72 Price/Book: N/A EV/EBITDA: -18.75
Market Cap: $199.57M Avg. Daily Volume: 955,125 52 Week Range: $0.64 – $1.55

3. PHI, Inc. (PHII): $19.10

Chief Executive Officer Alton Anthony Gonsoulin Jr acquired 200,000 shares of this helicopter transportation services provider, paying $17.99 per share for a total amount of $3.6 million. Mr Gonsoulin increased his stake by 13.32% to 1,701,580 shares with this purchase. With a three month average daily volume of just 8,514, I was surprised to such a large purchase and was wondering if it was indeed an open market purchase or some other type of transaction. Checking the volume on December 07, 2010, the date of the purchase, confirmed that this was indeed an open market purchase as the volume on that day spiked to nearly 50 times average daily volume with 402,500 shares traded.

The valuation of PHI does look attractive with the company selling at just 0.54 times tangible book value and a EV/EBITDA of 5.9. There have been no other insider purchases or sales over the last year. The key areas of concern are the low volume mentioned earlier, a quarterly loss reported in the third quarter and low single digit margins.

P/E: 32.82 Forward P/E: N/A Industry P/E: N/A
P/S: 0.56 Price/Book: 0.61 EV/EBITDA: 6.11
Market Cap: $292.44M Avg. Daily Volume: 8,569 52 Week Range: $13.15 – $24.10

4. MoSys, Inc. (MOSY): $4.79

Shares of this semiconductor company were purchased by two insiders:

  • CEO & President Leonard Charles Perham acquired 275,000 share, paying $4.38 per share for a total amount of $1.2 million. Mr Perham increased his stake by 37.93% to 1 million shares with this purchase.
  • Director Carl Berg acquired 230,000 shares, paying $4.38 per share for a total amount of $1 million. Mr Berg increased his stake by 184% to 354,998 shares with this purchase.
P/E: N/A Forward P/E: N/A Industry P/E: 19.19
P/S: 9.95 Price/Book: 2.92 EV/EBITDA: -7.05
Market Cap: $153.84M Avg. Daily Volume: 63,378 52 Week Range: $3 – $5.23

5. China MediaExpress Holdings, In (CCME): $15.52

Shares of this television advertising network provider were purchased by two insiders:

  • Chief Financial Officer Jacky Wai Kei Lam acquired 100,000 shares, paying $15 per share for a total amount of $1.5 million. Ms Jacky increased her stake by 2500% to 104,000 shares with this purchase.
  • Director Dorothy Dong Ying acquired 25,000 shares, paying $9 per share for a total amount of $225,000.
P/E: 6.56 Forward P/E: 5.41 Industry P/E: N/A
P/S: 2.75 Price/Book: 3.19 EV/EBITDA: 2.70
Market Cap: $532.18M Avg. Daily Volume: 1,122,930 52 Week Range: $7.58 – $22.30

Notable Insider Sales:

1. Campbell Soup Co. (CPB): $34.48

Shares of this soup and retail products company were sold by three insiders:

  • Director Bennett Dorrance sold 1,834,621 shares, paying $34.5 per share, generating a total amount of $63.3 million
  • Director Charlotte Weber sold 579,300 shares, paying $33.98 per share, generating a total amount of $19.68 million
  • Vice President Patrick Callaghan sold 30,000 shares, paying $34.14 per share, generating a total amount of $1.02 million
P/E: 14.6 Forward P/E: 12.91 Industry P/E: 17.03
P/S: 1.51 Price/Book: 10.46 EV/EBITDA: 9.04
Market Cap: $11.55B Avg. Daily Volume: 2,450,490 52 Week Range: $32.18 – $37.59

2. RealD Inc. (RLD): $27.65

Shares of this movie production company that went public in August 2010 were sold by five insiders:

  • Director Stephen Royer sold 5,396,475 shares for $26.64 per share, generating a total amount of $143.76 million
  • CEO and Chairman of the Board Michael Lewis sold 1,129,590 shares for $26.64 per share, generating a total amount of $30 million
  • Director Joshua Greer sold 1,128,202 shares for $26.64 per share, generating a total amount of $30 million
  • President, Worldwide Cinema Joseph Peixoto sold 307,826 shares for $26.64 per share, generating a total amount of $8.2 million. This sale was as a result of exercising options immediately prior to the sale.
  • CFO & COO Andrew Skarupa sold 142,717 shares for $26.64 per share, generating a total amount of $3.8 million. This sale was as a result of exercising options immediately prior to the sale.
P/E: N/A Forward P/E: 46.08 Industry P/E: 20.81
P/S: 6.3 Price/Book: 11.2 EV/EBITDA: -91.12
Market Cap: $1.34B Avg. Daily Volume: 397,798 52 Week Range: $15.63 – $30.55

3. Estee Lauder Companies Inc. (EL): $78.09

Shares of this personal products company were sold by two insiders:

  • Chairman, Clinique Labs, LLC Ronald Lauder sold 350,000 shares for $77.93 per share, generating a total amount of $27.28 million
  • EVP – Global Human Resources Amy DiGeso sold 10,000 shares for $77.23 per share, generating a total amount of $772,300
P/E: 29.73 Forward P/E: 21.05 Industry P/E: 19.67
P/S: 1.9 Price/Book: 7.22 EV/EBITDA: 12.86
Market Cap: $15.29B Avg. Daily Volume: 1,486,180 52 Week Range: $47.09 – $78.82

4. Ulta Salon, Cosmetics & Fragrance, Inc. (ULTA): $34.71

Director Lynelle Kirby sold 649,900 shares of this beauty retailer for $34.32 per share, generating a total amount of $22.3 million. 349,900 of these shares were sold as a result of exercising options immediately prior to the sale.

P/E: 37.61 Forward P/E: 25.15 Industry P/E: 12.57
P/S: 1.55 Price/Book: 6.24 EV/EBITDA: 12.96
Market Cap: $2.05B Avg. Daily Volume: 527,655 52 Week Range: $17.05 – $37.24

5. TD AMERITRADE Holding Corporation (AMTD): $18.45

Director Joe Ricketts sold 799,675 shares of this securities brokerage services provider for $18.54 per share, generating a total amount of $14.83 million.

P/E: 18.45 Forward P/E: 13.67 Industry P/E: 14.37
P/S: 4.24 Price/Book: 2.82 EV/EBITDA: N/A
Market Cap: $10.63B Avg. Daily Volume: 3,506,110 52 Week Range: $14.53 – $20.58

Voluntary Disclosure: I hold a long position in Scientific Games (NASDAQ:SGMS)

Source: Insider Buys and Sells: Scientific Games, Campbell Soup