Do These Large Insider Sales Constitute Pessimism?

Includes: MKTX, WFM
by: Edgar Ambartsoumian

I keep a close eye on stocks that have large insider transactions. There is a notion that when insiders are buying their company stock, then it is often viewed as a positive sign, since executives have knowledge of exclusive information. While this may hold true, there are numerous other reasons why insiders accumulate or sell shares. For example, downpayment on a house, director resignation, or even cyclical nature of a company would often warrant these insider sales with large volumes. Let us focus on a few recent insider sales that have been overlooked by investors.

Whole Foods (WFM) director Jonathan Sokoloff unloaded 2,623,636 shares between November 4th and November 8th valued in a total amount of $179,849,203. Interestingly enough, the stock has managed to decrease modestly since then, losing a little over 3%. Although executives often know when to stay on the sidelines, this large block of sale could be viewed as a warning sign to the company's next quarter earnings. On 11/2/2011, Whole Foods reported a 4th quarter earnings of $0.42 a share, which was in line with the analysts' consensus. The stock had a 6.56% EPS growth for the past 5 years and 16.6% expected EPS growth for the next 5 years. It has a 0.58% dividend yield and boasts a 86.71% institutional ownership with a total insider ownership of 0.84%. On Sep. 15th, Deutsche Bank initiated a "Buy" rating on the stock with a price target of $75.

Other insider sales were detected in MarketAxess Holdings Inc. (MKTX) by Themelis Nicholas, the Chief Information Officer, and director Burkhardt Roger who together sold 121,982 shares in a total amount of $3,499,217.

Not that it matters, but all of the sales were incrementally sold into strength as $29 a share constituted a fair value resistance for the insiders to unload.

It is just as hard to speculate on this $1 billion trading platform company's next quarter earnings as it was on Whole Foods. Company has a consecutive track record of beating analysts' earnings estimates. On 10/26/2011 it repoted a $0.34 per share earnings, which beat analyst consensus estimates of $0.28 a share and last year's quarter results by nearly 55%. The stock had a 28.55% EPS growth for the past 5 years and a 15% expected EPS growth for the next 5 years. It has a 1.21% dividend yield and an institutional ownership of 96.63% with 1.5% insider ownership. Exercise caution when trading this tech company, as the stock has been forming a double top after a lengthy uptrend.

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

About this article:

Author payment: $35 + $0.01/page view. Authors of PRO articles receive a minimum guaranteed payment of $150-500. Become a contributor »
Problem with this article? Please tell us. Disagree with this article? .