This report, part of our weekly coverage of insider trades (based on last week’s SEC Forms 3, 4, and 5 filings), summarizes last week’s major insider filings across multiple sectors, including consumer, financial, retail, industrial and transportation sectors. Our previous coverage of last week’s insider trades analyzed them by sector concentrations in technology, basic materials and healthcare (for a general discussion on how to interpret insider trades, please look at the end of this article):
Wells Fargo & Company (WFC): WFC is a diversified financial services holding company with 9,000 offices primarily in the U.S., and provides retail, commercial and corporate banking services. Insiders currently hold 13.5 million shares or 0.3% of outstanding shares. During the past week, Sr. Executive VP Patricia Callahan sold (regular sale) 76,000 shares for $1.99 million. Ms. Callahan ended the week with only 4,274 shares, so the 76,000 shares sold was a significant part of her overall holdings. Furthermore, this sale comes on top of the 50,000 shares sold (regular sale) Sr. Executive VP David Carroll that we reported just two weeks ago in our weekly coverage of insider trades in the finance sector for that week. Overall, WFC insiders have sold 126,000 shares just in the last three weeks (buying none), which is a significant acceleration in selling given that insiders sold only a total of 10,000 shares (buying 11,000 shares) during the prior 49 weeks of the last year.
Duke Energy Corp. (DUK): DUK provides electrical and natural gas utility services to about 4 million electric and 500,000 gas customers in the Americas. Insiders currently hold 4.7 million shares or 0.4% of outstanding shares, and last week, three insiders exercised their options and sold (all regular sales) a total of 1.67 million shares for $34.6 million. The selling insiders included CEO James Rogers (1.63 million shares), CFO Lynn Good (37,938 shares) and Director John Forsgren (1,400 shares). This is a significant acceleration in insider selling, given that DUK insiders sold only an additional 96,145 shares (buying none) during the prior 51 weeks of the past year.
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. Corporate insiders, holders of more than 10% beneficial ownership in YRCW, reported last week that they sold a total of 17.6 million shares. This included 15.5 million shares sold by Catalyst Fund Limited Partnership II, managed by private equity owner Catalyst Capital Group Inc. (OTCQB:CCGI) out of Toronto, Canada, and another 2.1 million shares sold by hedge fund Owl Creek Asset Management, headed by Jeffrey Altman. We reported on prior selling activity of both of these funds in our recent coverage of insider activity for the prior week and for the week preceding that.
Time Warner Inc. (TWX): TWX is a global holding company with interests in television networks, filmed entertainment and publishing. Insiders currently hold 19.4 million shares or 1.8% of outstanding shares, and last week, Executive VP exercised options to acquire 50,551 shares and then sold (regular sale) 92,873 shares for $3.2 million. This is a significant acceleration in insider selling, given that TWX insiders sold only an additional 17,438 shares (buying none) during the prior twelve weeks of the last three months, and during the past year, they sold a total of 254,918 shares (buying 6,200 shares).
Procter & Gamble (PG): With more than 250 products marketed to more than five billion consumers in 130 countries, PG is a global manufacturer of beauty care products, cleaning products, diapers, tissues, healthcare, toothpaste, snacks and beverages. It operates via five business segments: fabric and home care, paper, beauty care, healthcare, and food and beverage. Insiders currently hold 5.4 million shares or 0.2% of outstanding shares, and last week Global Customer Business Development Officer Robert Fregolle exercised options to acquire 15,300 shares and then sold (regular sale) 18,366 shares for $1.2 million. This is a significant acceleration in insider selling, given that PG insiders sold only an additional 11,948 shares (buying 6,299 shares) during the prior twelve weeks of the last three months, and during the past year, they sold a total of 59,967 shares (buying 7,577 shares).
Kellogg Company (K): Kellogg manufactures and markets ready-to-eat cereal and convenience food products in North America, Europe, Latin America and Asia Pacific. Its principal products include cookies, crackers, toaster pastries, cereal bars, fruit-flavored snacks, frozen waffles and veggie foods. Insiders currently hold 81.4 million shares or 21.3% of outstanding shares, and last week, Chairman James Jenness bought 10,000 shares for $0.5 million. This is significant, because it is the first insider buy at Kellogg in over five years.
Paccar Inc. (PCAR): PCAR designs, manufactures and distributes light, medium and heavy-duty trucks and related aftermarket parts primarily in the United States and Europe. It is the third largest manufacturer of heavy-duty trucks in the world after Volvo and Daimler, and markets its heavy-duty diesel trucks under the Kenworth, Peterbilt, and DAF nameplates. The company sells its products for use in over-the-road and off-highway hauling of freight, petroleum, wood products, construction and other materials. Insiders currently hold 17.1 million shares or 4.7% of outstanding shares, and during the last week, Chairman and CEO Mark Pigott exercised options and sold the resulting 284,724 shares for $12.4 million. This is a significant acceleration in insider selling, given that PCAR insiders sold only an additional 71,529 shares (buying none) during the prior 51 weeks of the past year.
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 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.
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.
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.