There are many indicators I use when analyzing a stock. One is unusual option activity. Another indicator I look for are relatively cheap dividend stocks. Finally, another indicator is insider activity, such as the ones described here. Looking carefully at insider selling in these stocks may be a cause of concern or simply just an insider looking to diversify some of his/her assets:
Atmel (ATML) designs, develops, manufactures, and markets a range of semiconductor integrated circuit (IC) products. On Oct. 18, Exec. VP Dr. Wu sold 100,000 shares at $10.09. However, with Dr. Wu still holding well over 8M shares, I don't think this is anything to worry about and he's just looking to diversify some of his big ownership in ATML. Moreover, the stock trades at just 8x P/E, .4x PEG, has no debt and approximately $1/share in net cash. I think this is a safe company to continue holding and if it moves lower, I'd be looking to acquire more shares.
Bed Bath & Beyond (BBBY), together with its subsidiaries, operates a chain of retail stores. On Oct. 18, Co-Chairman Feinstein sold 400,000 shares, while other Co-Chairman Eisenberg sold 600,000 shares. This represents a good portion of their holdings as they each owned approximately 2M shares prior to this sale, but I wouldn't be too worried as the stock is just coming off an all-time high and naturally they'd like to book some profits. Moreover, the stock is reasonably priced at 17x P/E, 1x PEG, 1.4x EV/S, and fantastic balance sheet with no debt and over $7/share in net cash. I'd continue holding BBBY if I do and not be worried about these sales.
Fastenal (FAST) is engaged as a wholesaler and retailer of industrial and construction supplies. On Oct. 18, Board director Kierlin sold 100,000 shares, but still owns just under 14M shares after this transaction so I wouldn't be worried. However, the stock trades at a rather lofty 30x P/E, 3.8x P/B, and 17x EV/EBITDA, so I'd look to book profits here if holding the stock as it sits right near an all-time high.
AutoZone (AZO) retails and distributes automotive replacement parts and accessories. On Oct. 18, major shareholder and former board director Lampert sold 247, 970 shares after selling 249,904 shares the day before. He still owns approximately 2M shares after this sale, but has made it quite clear this past year he's looking to exit his very profitable investment in AZO. The stock is trading right near an all-time high and has some poor valuation with a negative book value of approximately $30/share, relatively expensive 17x P/E, and 2x EV/S. The company has been performing well though as people have been spending more in repairs during these tough economic times to extend the life of their car as much as possible, but with very little cash and well over $3B in debt, this company has very little margin of error. I'd look at long-time shareholder Lampert's sale as a good indication that this company has reached its value and time to book profits.
Red Hat (RHT) provides open source software solutions to enterprises worldwide and enterprise-ready open source operating system platforms. On Oct. 14, CEO & President Whitehurst exercised and sold his 100,000 shares on the open market. It's discouraging how he has a rather small position of under 300,000 shares, but this type of selling is quite common so it wouldn't worry me. RHT is definitely for the growth investor though trading at a trailing 75x P/E and forward 39x P/E, 32x EV/EBITDA, and almost 7x EV/S. It has a fantastic balance sheet though with no debt and almost $5/share in net cash and has been performing relatively well operationally the last few years. However, this is a stock I see priced for perfection and I would be cautious.
Constellation Brands (STZ) produces and markets alcoholic beverages primarily in the United States, Canada, and New Zealand. On Oct. 13, Exec. Chairman Richard Sands sold 226,050 shares, while President and CEO Robert Sands sold 224,522 shares. These are pretty sizeable sales compared with their holdings of approximately 500,000 shares so this would be worrisome to me. Moreover, the balance sheet doesn't look pretty with just a very small $10M cash position against over $200M in short-term debt and approximately $3B in total debt. Moreover, the company has a negative net tangible book value and is trading at a relatively lofty 11x EV/EBITDA. The company does have some strong FCF of approximately $530M this past year and trades at a trailing 6.5x P/E and forward 9x P/E, but the very small cash position is worrisome to me along with these sizeable sales.
OCZ Technology Group (OCZ) engages in the design, manufacture, and distribution of solid state drives and computer components. On Oct. 12, President and CEO Petersen sold 150,000 shares, however he still owns well over 2.5M shares so this wouldn't be a cause of concern to me. The unfavorable operating history is more worrisome to me as the company lost approximately $25M in net income and FCF this past year. The very clean balance sheet is encouraging with essentially no debt and approximately $1.25/share in net cash, while the stock trades at just 1x EV/S and forward 10x P/E. This makes for a nice speculative buy as the company looks to move toward profitability, but be cautious.
QUALCOMM (QCOM) engages in the development, design, manufacture, and marketing of digital wireless telecommunications products and services. On Oct. 11, founder and board director Irwin Jacobs had an automatic sale of 116,064 shares. As he still holds approximately 4.5M shares, this wouldn't worry me and QCOM still has a fantastic balance sheet with approximately $9.5B in net cash. Moreover, the stock is at a reasonable 21x trailing P/E and 15x forward P/E, while the stock churned out a very healthy $3.65B in FCF this past year and sports a decent 1.6% dividend yield. I'd continue holding QCOM.
Sources: SEC filings, Yahoo, GuruFocus
Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.