During the past week, corporate insiders traded a number of consumer sector stocks, including Pepsico Inc. (PEP) and General Mills (GIS). Many of these were regular trades in the open market, and others were automatic trades made under SEC Rule 10b5-1. It is generally believed that regular insider share purchases and sales in the open market carry more predictive value as they are made voluntarily by the insiders. Conversely, trades made under SEC Rule 10b5-1, called “Automatic Buys” and “Automatic Sells”, are part of a pre-determined plan or contract, and it is assumed that the plan was created before the insider had any privileged non-public information.
While insiders are prohibited from trading based on nonpublic information, most believe that such trading does occur around the edges. The thinking goes that corporate insiders, because of their access, have the most up-to-date information on the health of their companies and the industries they operate in. Investors, as a result, can benefit from the timely knowledge of insider transactions. In fact, one University of Michigan study found that when executives bought shares in their own companies, the stocks tended to outperform the total market by 8.9% over the next 12 months. Conversely, when they sold shares, the stock underperformed by 5.4%.
Furthermore, even automated trades made under 10b5-1 have some predictive value due to loopholes in the rule that, for example, allow the insider to cancel the trading plan without any penalty or legal liability. So, the insider could set up a 10b5-1 trading plan before they have inside information (for example, from a quarterly report and guidance) while retaining the option to later cancel the plan based on the inside information. So, in effect, the execution of an automated trade also carries some predictive value as insiders retain the option under the existing rules to cancel their trades without penalty or legal liability.
Insider trading as defined here (and by the SEC) includes not just corporate insiders such as company executives and key employees, but also directors and large shareholders that have access to non-public information. Large shareholders are defined by the SEC for this purpose are those that having beneficial ownership of ten percent of more of the firm’s equity securities (including institutional investors). Furthermore, like in the 13-D and 13-G filings for Institutions, the SEC Forms 3 and 4 on insider filings are extremely timely, and hence of greater significance, as they must be reported within two business days of the trade.
The following is our summary of the most recent major insider filings in the consumer sector during the last week:
Pepsico Inc. (PEP): PEP is the world’s leading manufacturer of foods, snacks, and carbonated and non-carbonated beverages. Insiders currently hold 0.4% of company shares, and during the last week, CEO of Pepsico AMEA region Abdul-Latif Saad exercised options and sold 91,940 shares, or 1.3% of the total number of shares held (directly and indirectly) by insiders. During the past year, 15 PEP insiders have sold a total 0.96 million shares or 12.3% of the total number of shares held by insiders; no insider bought PEP stock in the last year.
Las Vegas Sands Corp. (LVS): LVS owns, develops and operates various integrated resort properties in the U.S., Macau, and Singapore, including The Venetian Resort Hotel Casino, The Palazzo Resort Hotel Casino, and The Sands Expo and Convention Center in Las Vegas, Nevada; the Sands Macao, The Venetian Macao Resort Hotel, the Plaza Casino, and the Four Seasons Hotel in Macau, the People’s Republic of China; and the Marina Bay Sands in Singapore. Insiders hold 8.0% of the company, and during the last week, President and COO Michael Leven exercised options and sold the resulting 150,000 shares at $6.7 million, as part of a previously disclosed 10b5-1 trading plan, under which he has sold between 125,000 and 150,000 shares every month this year. During the past year, 20 LVS insiders sold a total 2.2 million shares or 0.5% of the total number of shares held by insiders; no insider bought LVS stock in the last year.
General Mills Inc. (GIS): GIS manufactures cereals, specialty foods, yogurt, dough mixes, and snacks for the retail, club store and wholesale markets. Insiders currently hold 0.9% of company shares, and during the last week, Sr. VP John Church exercised options and sold the resulting 41,700 shares, or 0.1% of the total number of shares held (directly and indirectly) by insiders. During the past year, 27 GIS insiders have sold a total 1.0 million shares or 3.1% of the total number of shares held by insiders; only one insider bought GIS stock in the last year, buying 4,013 shares.
Marriott International (MAR): MAR operates and franchises 3,545 hotels and related lodging properties in 68 countries. Insiders hold 6.9% of the company, and during the last week, Chairman and CEO JW Marriott Jr. and 10% owner Richard Marriott sold a total 31,166 shares at $0.95 million, or 0.02% of the total number of shares held (directly and indirectly) by insiders. During the past year, 37 MAR insiders sold a total 4.2 million shares or 2.5% of the total number of shares held by insiders; only two insiders bought MAR stock in the last year, buying a total of 4,275 shares.
Majesco Entertainment Co. (COOL): COOL provides video game products for a variety of different consoles, PC, and handheld applications, primarily in the U.S. and Europe. Insiders hold 20.3% of the company, and during the last week, Director Laurence Aronson exercised options and sold the resulting 11,739 shares, or 0.03% of the total number of shares held (directly and indirectly) by insiders. During the past year, 28 COOL insiders sold a total 1.1 million shares or 2.6% of the total number of shares held by insiders; no insider bought COOL stock in the last year.
CBS Corp. (CBS): CBS is a global media company engaged in TV and radio broadcasting, motion picture production, publishing and advertising. Insiders hold 0.6% of the company, and during the last week, CEO Leslie Moonves exercised options and sold the resulting 300,000 shares under a 10b5-1 plan. During the past year, 50 CBS insiders sold a total 2.5 million shares or 17.4% of the total number of shares held by insiders; no insider bought CBS stock in the last year.
Disclaimer: Material presented here is for informational purposes only. Nothing in this article should be taken as a solicitation to purchase or sell securities. Before buying or selling any stock you should do your own research and reach your own conclusion. Further, these are our ‘opinions’ and we may be wrong. We may have positions in securities mentioned in this article. You should take this into consideration before acting on any advice given in this article. If this makes you uncomfortable, then do not listen to our thoughts and opinions. The contents of this article do not take into consideration your individual investment objectives so consult with your own financial adviser before making an investment decision. Investing includes certain risks including loss of principal.