This report identifies last week’s insider trades of noteworthy significance in energy, utility, industrials, and services sectors. The significance is either by virtue of their size, the number of insiders buying or selling, based on who is buying or selling, or by the trend of their buys and sales over the long term.
As a rule, insider buys are more informative than sells. This is because insiders sell often, and they sell for a variety of reasons that may be completely unrelated to the health of the company, including, for example, to diversity their holdings or to pay for an upcoming personal expense.
In contrast, insider buying is relatively uncommon, and since they have an exclusive window into their own company’s performance, it is reasonable to presume that they probably have good reasons, based on information at their disposal, when they are risking their own assets to buy company stock.
Overall, during the past week, corporate insiders traded a number of stocks in energy, utility, industrials, and services sectors, including buying Schlumberger Ltd. (NYSE:SLB), and selling in companies such as YRC Worldwide Inc. (NASDAQ:YRCW) and Southern Co. (NYSE:SO). Many of these were regular trades, and others were automatic trades made under SEC Rule 10b5-1.
It is generally believed that regular insider share purchases and sales 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 nonpublic information. Generally, almost all automatic trades are sells, not buys.
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, allows 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 he has 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 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 nonpublic 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 in energy, utility, industrials, and services sectors during the last week:
Insiders Selling YRC Worldwide Inc. (YRCW)
YRCW is an international provider of asset- and non-asset-based transportation services across the U.S., Puerto Rico, Canada, Guam and Mexico. Catalyst Fund Limited Partnership II, managed by private equity owner Catalyst Capital Group Inc. (OTCPK:CCGI) out of Toronto, Canada, sold 2.86 million shares at prices between 5.6c and 5.9c last week, in addition to the 5.15 million shares that it sold last week. At the end of the week, CCGI is still the beneficial owner of 83.9 million shares of YRCW. Furthermore, hedge fund Owl Creek Asset Management LP, headed by Jeffrey Altman, sold 1.6 million shares last week, in addition to the 22.0 million shares that it sold in the prior three weeks, since they started selling on October 7, and the 35.5 million shares it sold between September 16 and 21.
Insiders Selling Southern Co. (SO)
SO is a holding company engaged in generation, transmission and distribution of electricity to customers in Alabama, Georgia, Florida, Mississippi, and North Carolina. Insiders currently hold 0.02% of company shares. During the last week, the president and CEO of Southern Company Services Division, Susan Story, exercised options and sold (regular sale) the resulting 78,529 shares or 31.1% of the total number of shares held by insiders. Just last week, we reported that Executive VP and COO Anthony Topazi exercised options and sold (regular sale) the resulting 37,805 shares. Overall, during the past year, SO insiders have sold 0.98 million shares, and they bought 957 shares during that period.
Insiders Selling Danaher Corp. (NYSE:DHR)
DHR is a manufacturer of water treatment and vapor recovery systems, fuel dispensers, digital imaging systems and test products. Insiders currently hold 19.1 million shares or 2.9% of outstanding shares, and during the last week, six insiders sold (all regular sales) a total of 0.53 million shares. Approximately 0.11 million of these shares sold were acquired from the exercising of options, and another 0.34 million shares were from Employee Stock Option Plan. The selling insiders included CEO Lawrence Culp, CFO Daniel Comas, Executive VP James Lico, Sr. VP and GC Jonathan Graham, and Directors Donald Ehrlich and Walter Lohr. Overall, during the past year, insiders have sold 0.92 million shares, and they bought 7,500 shares during that period.
Insiders Buying Schlumberger Ltd. (SLB)
SLB provides technology services, project management and information solutions to the petroleum industry worldwide. Insiders currently hold 17.5 million shares, or 1.3% of outstanding shares. During the last week, CEO Paal Kibsgaard bought 6,000 shares (regular buy), and at the end of the week he owned 21,681 shares. Overall, during the past year, insiders have bought 8,700 shares and sold 602,196 shares.
Insiders Selling Western Refining Inc. (NYSE:WNR)
WNR refines and markets crude oil and refined products in West Texas, Arizona, New Mexico, Utah, Colorado and the mid-Atlantic region. Insiders currently hold 36.2 million shares, or 40.8% of outstanding shares. During the last week, Franklin Mountain Investment Limited Partnership, an institutional insider by virtue of being the beneficial owner of more than 10% of the company shares, sold 85,000 shares under a 10b5-1 plan, and at the end of the period owned 17.7 million shares. Former CEO and now Chairman of the Board Paul Foster is an officer with the Franklin Mountain. Overall, during the past year, insiders have sold 4.6 million shares, and have not bought any shares in WNR.
Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.
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 any investment decision. Investing includes certain risks, including loss of principal.