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 consumer and retail sectors together accounted for 17% of the insider activity, with strong insider buying at auto manufacturer Ford Motor (F) and office Supply Company Offcemax Inc. (OMX), and heavy insider selling at retailer Target Corp. (TGT).
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 consumer and retail sectors (for a general discussion on how to interpret insider trades, please look at the end of this article):
Ford Motor (F): Ford manufactures automobiles under the Ford and Lincoln nameplates, offers a wide range of after-sales vehicle services and products, and also offers vehicle financing, leasing and insurance services. Insiders currently hold 22.8 million shares or 0.7% of outstanding shares. During the last week, Chairman William Ford bought 25,000 shares. This is in addition to the 50,000 shares he bought in September when F share prices were weak once again in the $10 range as at the end of last week. Besides Mr. Ford, Ford has seen insider buying by Directors Anthony Earley Jr. and Irvine Hockaday in the last three months, purchasing a total of 115,000 shares (selling none). In contrast, in the prior nine months of the year, Ford insiders sold 1.31 million shares and bought only 15,000 shares. With Ford shares trading at 52-week lows and slashed in half from the highs seen in January this year, the insider buys convey a strong confidence by insiders in the outlook for Ford going forward.
DR Horton Inc. (DHI): DHI builds single-family detached, as well as attached homes, such as town homes, duplexes, triplexes and condominiums, for first-time and move-up home buyers in 26 states and 72 metropolitan markets. Insiders currently hold 28.7 million shares or 9.1% of outstanding shares. During the last week, CEO Don Tomnitz sold 176,475 shares for $1.97 million, ending the week with 1.13 million shares. This is significant in that it is a large sell and also since the last time insiders sold was in August of 2010; as a reference, there has been no insider buying at the company since 2008.
Lowe's Companies Inc. (LOW): LOW operates as a home improvement retailer operating 1,749 stores in the U.S., Canada and Mexico. Insiders currently hold 4.1 million shares or 0.3% of outstanding shares. During the last week, EVP of Logistics & Distribution Michael Mabry exercised options and sold the resulting 55,000 shares (regular sell) for $1.3 million, ending the week with 118,899 This is significant in that it is a large sell and also since the last time insiders sold was in May this year; as a reference, there has been no insider buying at the company since August of last year.
Wal-Mart Stores (WMT): WMT is the world's largest retailer, and operates Wal-mart and Sam's Club stores worldwide under discount, super-center and neighborhood market formats. Insiders currently hold 31.5 million shares or 0.9% of outstanding shares. During the last week, EVP & CIO Rollin Ford exercised options and sold the resulting 43,016 shares (regular sell) for $2.5 million, ending the week with 103,134 shares. This is in addition to the 9,885 shares sold by EVP Douglas McMillon just last week, so that insiders have sold a total of 52,901 shares in the last two weeks (buying none), a significant pick up given that insiders sold only an additional 187,705 shares in the prior 50 weeks of the year (buying none). WMT shares currently trade near the highs of their 10+-year trading range, so the pickup in insider selling conveys a lack of confidence by insiders that it may break out of that trading range and go higher from here.
Target Corp. (TGT): Discount chain TGT operates 1,750 Target and SuperTarget Stores across the U.S. offering everyday items, food and fashionable merchandise. Insiders currently hold 1.8 million shares or 0.3% of outstanding shares. During the last week, four corporate executive insiders sold a total of 65,712 shares for $3.5 million. This is a significant pick-up in insider selling given that insiders sold only an additional 4,000 shares during the remainder twelve weeks of the last three months, and they sold only a total of 556,840 shares during the last year (buying none).
Officemax Inc. (OMX): OMX operates 997 office supply stores worldwide offering branded office products, technology products and furniture via almost 1,000 retail stores in the U.S. and Mexico. In addition, its Contract segment markets and sells office products directly to government and corporate clients through field salespeople, outbound telesales, catalogs, Internet and office products stores via 44 distribution centers in the U.S., Canada, Puerto Rico, Australia and New Zealand. Insiders currently hold 2.4 million shares or 2.8% of outstanding shares. During the last week, CEO Saligram bought 55,500 shares, increasing his holding to 268,189 shares. This is significant in that it is a large purchase, and also in that it represents a strong pick-up in insider buying given that insiders bought only a total of 89,300 shares in the past year (selling none). OMX currently sells near all-time lows, so the 55,500 share purchase by its CEO is a strong sign of confidence in the outlook for the company.
Dunkin’ Brands Group Inc. (DNKN): DNKN franchises over 16,000 Dunkin’ Donuts and Baskin-Robbins Donut and Ice Cream shops in the U.S. and 56 foreign countries. Insiders currently hold 1.6 million shares or 1.3% of outstanding shares. During the last week, Bain Capital and five corporate insiders sold a total of 7.8 million shares for $192 million. The five selling corporate insiders (all regular sells) included CEO Travis, Chief Development Officer Dawson, SVP of Corporate Communication Raskopf, Chief Information Officer Sheehan, and two Directors, selling a total of 663,376 shares.
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.
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.
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Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.