Technology Sector: Analyzing Noteworthy Buys And Sells By Insiders

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 |  Includes: AAPL, INTC, OLED, ORCL, QRVO, STX, WDC, XLNX
by: GuruFundPicks

Overall, during the past week, corporate insiders traded a number of technology sector stocks, including a purchase by an institutional insider in Universal Display Corp. (NASDAQ:PANL), an acceleration of selling activity at Sandisk Corp. (SNDK) and Intel Corp. (NASDAQ:INTC), and a surprising normal selling activity in Apple Inc. (NASDAQ:AAPL). This report, part of our weekly coverage of insider trades by sector (based on last week’s SEC Forms 3, 4, and 5 filings), summarizes last week’s major insider filings in the technology sector (for a general discussion on how to interpret insider trades, please look at the end of this article):

Universal Display Corp. (PANL): PANL is a designer of organic light-emitting diode devices for flat panel displays used in the consumer electronics market. Insiders currently hold 2.66 million shares or 5.8% of outstanding shares. On Tuesday last week, hedge fund Discovery Capital Management, headed by Tiger Cub (of Julian Robertson fame) Robert Citrone, also 10% beneficial of the company, added 300,000 shares to their holdings. At last filing for the June quarter, Discovery held 3.06 million shares of PANL, so the 300,000 shares added are a significant addition and a sign of confidence in PANL’s outlook going forward from this institutional insider. Overall, insiders bought 300,000 shares in PANL during the last three months (all from this purchase by Discovery), and they sold 202,343 shares during that period.
Sandisk Corp. (SNDK): SNDK manufactures non-volatile or flash removable memory cards used in a number of rapidly growing consumer electronics products such as smart phones, personal digital assistants, digital cameras, portable digital music players, digital video recorders, gaming devices and computers. Insiders currently hold 0.34 million shares or 0.15% of outstanding shares. During the last week, four insiders exercised their options and sold (regular sale) the resulting total 279,250 shares. This is on top of the 72,639 shares sold that we reported insiders sold just last week in our weekly review of insider trades by sector, giving a grand total insider selling of 391,789 shares in the last two weeks alone. This suggests a strong acceleration in insider selling which is particularly significant, given that all of these sales the last two weeks were regular sales, and not part of any 10b5-1 plans. As a comparison, insiders sold only an additional 39,900 shares (buying none) during the prior eleven weeks of the last three months, and they sold only an additional 781,128 shares (buying none) during the prior 50 weeks of last year.

Apple Inc. (AAPL): AAPL is one of the world’s largest manufacturers of personal computers, mobile communication devices, and portable digital music players. Insiders currently hold 6.7 million shares or 0.75% of outstanding shares, and during the last week, two insiders exercised their options and sold (“Automatic Sell”) the resulting total 18,500 shares. This included Sr. VP of Operations Williams Jeffrey (3,500 shares), and Director Arthur Levinson (15,000 shares). However, what is perhaps noteworthy here is the lack of any acceleration in insider selling and the confidence that implies by senior management, given the recent sad demise of industry titan and the lifeblood of AAPL, Mr. Steve Jobs. Overall, insiders sold a total 261,659 shares (buying none) in the last year, compared to selling 56,497 shares (buying none) in the past three months.

Intel Corp. (INTC): INTC is one of the world’s largest manufacturers of semiconductor chips, including microprocessors, chipsets, network processors, motherboards, non-volatile memory and storage. Its products are used in notebooks, netbooks, desktops, servers, workstations, storage products, embedded applications, communications products, consumer electronics devices and handhelds. Insiders currently hold 18.6 million shares or 0.33% of outstanding shares, and during the last week, two insiders exercised their options and sold (regular sale) the resulting 274,280 shares, including EVP and President of Intel Capital Arvind Sodhani (166,280 shares) and EVP Andy Bryant (108,000 shares); another insider, Director Craig Conway sold (regular sale) 7,500 shares. This is on top of the 0.55 million shares that we reported insiders sold just last week in our weekly review of insider trades by sector, giving a grand total insider selling of 0.83 million shares in the last two weeks alone. This suggests a strong acceleration in insider selling, which is particularly significant given that all of the sales this week were regular sales, and not part of any 10b5-1 plans. As a comparison, insiders sold only an additional 0.50 million shares (buying none) during the prior eleven weeks of the last three months, and they sold only an additional 0.78 million shares (buying none) during the prior 50 weeks of the last year.

Oracle Corp. (NYSE:ORCL): ORCL develops database and middleware software, and business application software and hardware systems for enterprises. Insiders currently hold 1.10 billion shares or 22.1% of outstanding shares, almost all held by CEO Larry Ellison. Last Monday, EVP of Product Development Thomas Kurian exercised options and sold (regular sale) the resulting 1.4 million shares at $46.41 million. This is a significant transaction for Mr. Kurian as over the last two years he has sold a total of 2.45 million shares, and after this transaction he only owns 29,812 company shares. Overall, though, selling in ORCL has been mild over the last three months during which insiders sold a total of 1.77 million shares (buying none), while they sold 19.60 million shares (buying 1,000 shares) over the last year.

Seagate Technology (NASDAQ:STX): STX manufactures hard disk drives for the enterprise, desktop, mobile computing, and consumer electronics markets. Insiders currently hold 27.9 million shares or 6.2% of outstanding shares, and last Wednesday Chairman, President and CEO Stephen Luczo sold (automatic sale) 300,000 shares at $17 for $5.1 million, under a 10b5-1 plan that was established in May. This is significant in the sense that it is the largest sale by Mr. Luczo at least in the last two years. Also, overall, selling has accelerated by insiders in company stock, selling 793,932 shares over the last three months, at a rate more than 150% higher compared to insiders selling 939,060 shares over the prior nine months.

RF Micro Devices Inc. (RFMD): RFMD manufactures radio frequency [RF] systems and solutions that drive mobile communications. Its applications are used in mobile devices, base stations, wireless LANs and advanced metering devices. Insiders currently hold 8.9 million shares or 3.4% of outstanding shares, and last week, three insiders sold a total of 80,000 shares (70,000 were regular sales and 10,000 were automatic sales). The selling insiders included VP & President of Multi-Market Products Robert Van Buskirk (50,000 shares), VP or Operations James Stilson (20,000 shares) and VP & President of Cellular Products Steven Creviston (10,000 shares). This is significant in the sense that 70,000 of the 80,000 shares sold were regular sales, and it represents an acceleration in selling activity as insiders sold only an additional 186,381 shares (buying none) during the prior eleven weeks of the last three months.

Xilinx Inc. (NASDAQ:XLNX): XLNX is a designer of field programmable gate arrays and complex programmable logic devices. Insiders currently hold 0.38 million shares or 0.15% of outstanding shares, and last week three insiders sold (regular sales) a total of 60,658 shares. The selling insiders included CEO Moshe Gavrielov (17,290 shares), Sr. VP Vincent Ratford (13,468 shares) and VP & General Counsel Scott Hover-Smoot (30,000 shares). This is significant in the sense that all the shares sold were regular sales, and it represents an acceleration in selling activity as insiders sold only an additional 22,492 shares (buying none) during the prior eleven weeks of the last three months.

General Discussion on Insider Trading

The reports in this series identify last week’s insider trades of noteworthy significance by sector or industry group, either by virtue of their timing, 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. The rest of the series by sector and by week can be accessed from our author page.

What is Insider Trading?: 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). Also, in the U.S., “insiders” are not just limited to corporate officials and major shareholders, but also when a corporate insider “tips” a friend about material non-public information, the duty the corporate insider owes the company is now imputed to the friend who is now in violation of a duty to the company if he or she trades on the basis of that information. The U.S. is generally viewed as having the strictest laws against illegal insider trading, and makes the most serious efforts to enforce them.

While most insider trading is legal, the term is commonly used to refer to the illegal kind when a corporate insider trades based on material non-public information that can have an effect on the company’s share price. By law, insiders are prohibited from trading based on nonpublic information, but 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%.

Timeliness of Information: 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.

Insider Buying More Informative than Selling: 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 diversify 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.

Regular and Automatic Trades: Insider trades maybe regular trades, or they may be 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 non-public information. Generally, almost all automatic trades are sells, not buys.

Furthermore, even automated trades made under 10b5-1 have some informative or 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.

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

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