Insiders bought a total of $1.39 billion worth of stock in 687 separate transactions, and they sold a total of $62.22 billion worth of stock in 477 separate transactions last week. Of this, the technology sector accounted for 30% of the insider activity, with strong insider buying at telecom Frontier Communications Corp. (FTR) and semiconductor manufacturer Triquint Semiconductor (TQNT), and heavy insider selling at LinkedIn Corp. (LNKD).
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):
Frontier Communications Corp. (FTR): FTR provides regulated and unregulated voice, data, and video services to residential, business and wholesale customers in the U.S. Insiders currently hold 9.8 million shares or 1.0% of outstanding shares. During the last week, Chairman & CEO Mary Agnes Wilderotter bought 48,000 shares for $0.25 million, ending the week with 1.34 million shares. This is in addition to the total 42,250 shares bought by Director Edward Fraioli and EVP Kathleen Abernathy less than three months ago (in early September), and represents a strong pickup given that insiders bought only an additional 40,060 shares in the remainder nine-ten months of the year (selling none). FTR shares trade at 9-year lows and within striking distance of all-time lows, so the pickup in insider buying is a sign of strong insider confidence in the long-term outlook for the company.
Triquint Semiconductor (TQNT): TQNT manufactures a broad range of high-performance RF, analog and mixed-signal ICs that are incorporated into a variety of communications products, including cellular phones and pagers, fiber optic telecommunications equipment, satellite communications systems, high performance data networking products and aerospace applications. Insiders currently hold 1.25 million shares or 0.8% of outstanding shares. During the last week, Directors Rhines Walden bought 15,000 shares, ending the week with 110,000 shares. This is in addition to the 15,500 shares bought by Director Walden at the beginning of the month, and brings total insider purchases in the last three months to 35,500 shares (selling none). This is a strong pickup in insider buying given that the last time, prior to the purchases in the past three months, that insiders bought TQNT shares was in 2009. TQNT shares have been very weak this year, falling almost three-quarters since the peak in February, so the pickup in insider buying as the stock moves lower is a sign of confidence in the outlook for the company.
Direct Insite Corp. (DIRI): DIRI is software as a service (SaaS) provider, marketing invoices on-line, an integrated transaction based electronic invoice presentment and payment service. It also provides financial supply chain automation and workflow efficiencies via its procure-to-pay and order-to-cash service offerings. Insiders currently hold 7.62 million shares or 71.3% of outstanding shares. During the last week, five insiders including CEO Oakes, acting CFO Wallace, and three Directors, bought a total of 395,000 shares. This is significant pickup in insider buying given that insiders bought only an additional 78,700 shares during the remainder 51 weeks of the year (selling a total of 333,976 shares during that period).
LinkedIn Corp. (LNKD): LNKD operates an online professional network via its proprietary social networking platform that enables members to create, manage and share their professional identities online, build and engage with their professional network, access shared knowledge and insights, and find business opportunities. With the expiration of the 180-day lockup period following its IPO on May 19th this year, ten corporate and institutional insiders sold a total of 4.64 million shares for $320.2 million. Major sellers included CEO Weiner (372,917 shares), Greylock Xi Ltd. Partnership (1.23 million shares), and Bessemer Venture Partners (1.25 million shares).
GT Advanced Tech Inc. (GTAT): GTAT provides poly-silicon production technology and multi-crystalline ingot growth systems, and related photovoltaic (PV) manufacturing services for the solar industry worldwide. Insiders hold 1.4% of the company shares, and last week CEO Thomas Guiterrez purchased 13,000 shares, increasing his holding to 183,402 shares. This is significant given its size, and that it is the first insider purchase in the company’s history; in comparison, insiders sold 375,769 shares in the last year.
Amkor Technology Inc. (AMKR): AMKR provides outsourced semiconductor packaging and test services in the U.S. and internationally. Insiders hold 79.5 million shares or 43.4% of the outstanding shares, and last week Director Churchill sold 26,586 shares, ending the week with 11,200 shares. This is significant given that the shares sold are a significant portion of Director Churchill’s holdings, and also given that it represents a pick-up in insider selling activity given that insiders sold only an additional 7,688 shares during the remainder of the past year (buying none). AMKR shares currently sell near 52-week lows, slashed by more than half since the beginning of the year, so the pick-up in insider selling is also significant in that respect.
KIT Digital Inc. (KITD): KITD provides digital media services enabling the broadcast of video content on the Internet and wireless devices. Insiders hold 16.5 million shares or 35.8% of the outstanding shares, and last week Chairman & CEO Isaza sold 677,000 shares for $7.1 million, ending the week with 2.17 million shares. This is significant given the size of the holding as well as given that the last time insiders sold KITD shares was in 2006; there were no insider purchases during 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.
Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.