Insider Selling Doesn't Always Mean That We Should Sell

by: Brian Gorban

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:

The Travelers Companies (NYSE:TRV), through its subsidiaries, provides various commercial and personal property and casualty insurance products and services to businesses, government units, associations, and individuals primarily in the United States. On Oct. 24, Vice Chairman and COO William Heyman sold 60,000 shares, which is a big portion of his approximate 150,000 share holdings, however these were simply the sale of some profitable options. Moreover, this company just trades at 14x P/E, .9x P/B, 1x EV/S, and very nice and growing 2.9% dividend yield. This continues to be a great holding.

Juniper Networks (NYSE:JNPR) designs, develops, and sells products and services that provide network infrastructure to create environments for the deployment of services and applications over a single network. On Oct. 24, board director William Stensrud sold 30,000 shares. He still holds just under 570,000 shares so I'd see this sale simply as a need to diversify his wealth rather than pessimism on the stock. Moreover, this fast-growing company is reasonably priced at trailing 24x P/E and forward 15.6x P/E, 1x PEG, and great balance sheet with over $2.3 billion in net cash. I think this is still a quality holding for the growth investor.

Domino's Pizza (NYSE:DPZ), through its subsidiaries, operates as a pizza delivery company in the United States and internationally. On Oct. 21, board director David Brandon sold 178,000 shares, which on the surface looked worrisome as this essentially was his whole position, however they were simply very profitable options that he got at an average price of approximately $8.5/share. However, I don't like DPZ too much going forward as the valuations aren't cheap now as it trades at a relatively expensive 21x P/E, 2.1x EV/S, and negative BV of $19/share. I'd be cautious with DPZ here.

Noble Energy (NYSE:NBL), through its subsidiaries, engages in the acquisition, exploration, development, production, and marketing of crude oil, natural gas, and natural gas liquids. On Oct. 21, Sr. VP of Exploration, Susan Cunningham, sold 20,000 shares. This at first is a sizable sale since it's over 25% of her holdings, however these were simply the sale fo some very profitable options she got at $16.27/share. NBL has shot up approximately 25% this past month though, stretching valuations a little now at 20x P/E, 5.5x EV/S, 2.1x P/B, and rather small 1% dividend yield. I'd rather own one of the big multinational energy companies, since they trade at lower valuation and higher dividend yield.

Linear Technology (NASDAQ:LLTC) together with its subsidiaries, designs, manufactures, and markets various analog integrated circuits worldwide. On Oct. 24, CTO Robert Dobkin sold 25,000 shares, however he still holds well over 700,000 shares and he acquired these 25,000 shares as options priced at $25.05. The company looks relatively cheap at 13x P/E, very strong ROA and ROE of 26% and 160% respectively, and nice 3.1% dividend yield. I think this is a high quality tech name.

Stryker (NYSE:SYK), together with its subsidiaries, operates as a medical technology company worldwide. On Oct. 24, board director Ronda Stryker sold 27,000 shares, however this wouldn't worry me at all since it is simply through an automatic sale program and she still holds approximately 15 million shares. Moreover, the stock looks relatively cheap at trailing 15x P/E and forward 12x P/E, under 8x EV/EBITDA, strong net cash position of approximately $1.5 billion, and growing 1.5% dividend yield. I'd continue to hold this stock.

Macy's (NYSE:M), together with its subsidiaries, operates department stores and Internet Web sites in the United States. On Oct. 24, Cheif Marketing Officer, Peter Sachse, sold 36,000 shares and now holds essentially no shares in M. These were profitable options acquired at $21.34, and with the stock near a 52-week high, profit-taking is understandable. Moreover, the stock is relatively cheap at a trailing 12.5x P/E and forward 10x P/E, .5x P/S, .7x EV/S, and only 5.7x EV/EBITDA. I'd continue to hold M.

Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.