Overall, during the past week, corporate insiders traded a number of technology sector stocks, including significant purchases by corporate executives in Windstream Corp. (NASDAQ:WIN) and Broadwind Energy Inc. (NASDAQ:BWEN), and multiple insider sales in Microchip Technology Inc. (NASDAQ:MCHP) and Qlik Technologies Inc. (NASDAQ:QLIK). 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.
Cisco Systems Inc. (NASDAQ:CSCO) is the worldwide leader in the manufacturing of IP-based networking and other products related to the communications and IT industry worldwide. Its products include switches, routers and other networking and communications hardware for corporate, education and government networks around the world. Insiders currently hold 7.7 million shares or 0.1% of outstanding shares.
Last week, four insiders sold a total of 1.58 million shares for $30.2 million, with 1.5 million of the shares sold (regular sell) by Chairman and CEO John Chambers under a 10b5-1 plan. The 10b5-1 was adopted on August 23, 2011, and under this plan, Mr. Chambers may sell up to 4 million shares of CSCO by June 2012. The insider sells last week are significant because overall, during the past year, insiders have sold only an additional 0.9 million shares, and after last week’s sale Mr. Chambers holds only 2.03 million shares of CSCO.
Windstream Corp. provides communications and technology solutions in the U.S., including IP-based voice and data services, multi-protocol label switching networking, data center and managed services, hosting services, and communications systems to business and government agencies. In addition, it also provides high-speed Internet, voice, and digital television services to residential customers primarily located in rural areas. Insiders currently hold 26.6 million shares, or 6.1% of outstanding shares. Last week, Director Dennis Foster bought 13,800 shares, increasing his holding in the company to 200,000 shares. Although insiders have generally been net buyers in WIN, this is a significant acceleration in insider buying as insiders bought only an additional 12,000 shares in the last three months, and overall they bought only 98,355 shares during the past year (selling none).
Capstone Turbine Corp. (NASDAQ:CPST) manufactures micro-turbine generators with cogeneration, resource recovery and secure power applications. The micro-turbines provide power at the site of consumption, and can be fueled by a variety of sources, including natural gas, propane, kerosene, diesel and biodiesel. Insiders currently hold 2.5 million shares or 1.0% of outstanding shares. Last week, Director Gary Mayo exercised options to acquire 10,000 shares, and then sold 27,269 shares (regular sell) for $34,000. Although the dollar amount of the sale is insignificant, the trend is significant in that insider selling has accelerated recently; insiders sold only an additional 3,308 shares during the remainder twelve weeks of the past quarter, and they sold a total of 78,703 shares during the past year.
Broadwind Energy Inc. manufactures wind turbine gears and towers, and other fabricated and machined products for the energy, mining and infrastructure sector customers primarily in the U.S. Insiders currently hold 23.8 million shares or 17.0% of outstanding shares. Last week, Executive VP and CFO Stephanie Kushner bought 60,450 shares. This is significant in that it is the only buy in the last three months, and over the last year insiders have bought only a total of 130,450 shares.
Evergreen Energy Inc. (EEE) is a developer of K-fuel technology, designed to improve coal quality and comply with air emission standards for coal producers. In addition, it also offers the GreenCert software suite to help power generators address new regulatory pressures regarding environmental emissions. Last week, Libra Advisors LLC, 10% beneficial owner of the company’s shares, 360,000 shares. This is significant in that insiders sold only an additional 0.24 million shares during the remainder of the past year.
Microchip Technology Inc. manufactures microcontrollers, application-specific standard products, and related mixed-signal and memory products for the consumer, automotive, office automation, communications and industrial markets. Insiders currently hold 240,000 shares or 0.1% of outstanding shares, and during the last week, two insiders exercised their options and sold (regular sell) the resulting 220,000 shares. This included Chairman and CEO Steve Sanghi (202,500 shares) and EVP & COO Ganesh Moorthy (16,000 shares). The 220,000 shares sold last week is in addition to the insider sales at MCHP that we reported last week, when six insiders, including Mr. Sanghi and Mr. Moorthy, sold a total of 140,000 shares. Overall, insiders have sold 36,000 shares in the past two weeks, a significant acceleration when compared to the fact that insiders sold only an additional 0.51 million shares (buying 200 shares) during the remainder of the past year.
Qlik Technologies Inc. develops business intelligence software and related applications allowing enterprises to analyze data. The company’s flagship product, QlikView, delivers enterprise-class analytics and search with the simplicity and ease of use of office productivity software. Insiders currently hold 2.0 million shares or 2.5% of outstanding shares. Last week, five corporate and institutional insiders reported selling a total of 610,000 shares for $18.2 million. The majority of the sales were by Director Erel Margalit (500,000 shares), on behalf of Jerusalem Venture Partners, on top of the 1.0 million shares that we reported they sold last week. Also, CEO Bjork Lars reported selling 40,000 shares (automatic sale) and two other directors reported selling an additional 67,400 shares. Overall, insiders sold 1.9 million shares during the last three months, and they bought none during that period.
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.
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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