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 basic materials sector accounted for 13% of the insider activity, with strong insider buying at oil & gas exploration & production company W&T Offshore Inc. (WTI), institutional insider buying at chemicals manufacturer LyondellBasell Industries NV (LYB), and insiders selling at Midway Gold Corp. (MDW).
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 basic materials sector (for a general discussion on how to interpret insider trades, please look at the end of this article):
Lyondellbasell Industries NV (LYB): LYB is a Netherlands-based manufacturer of polypropylene compounds, propylene oxide, polyethylene, ethylene and propylene. Insiders currently hold 5.2 million shares or 0.6% of outstanding shares. During the past week, private equity investment firm Apollo Global Management LLC purchased 2.28 million shares for $78.9 million, increasing its ownership to 169.9 million shares. Apollo specializes in leveraged buyout transactions and purchases of distressed securities involving corporate restructuring, special situations and industry consolidations. Also, in addition to the Apollo purchase, Director Bindra bought 3,300 shares of LYB last week. Overall, insiders bought 5.0 million shares (selling 218,481) during the last three months, and they bought 5.2 million shares (selling 24.4 million) during the past year.
Transatlantic Petroleum (TAT): TAT is engaged in crude oil and natural gas exploration and production in Turkey, Morocco, Bulgaria and Romania. Last week, CEO N. Malone Mitchell III bought 131,755 shares for $0.17 million, increasing his holdings in the company to 1.83 million shares. This is in addition to the 368,338 shares bought just last week, and represents a significant acceleration given that these were the only insider buys in the last three months. Over the past year, insiders purchased 1.74 million shares (selling 0.20 million shares).
W&T Offshore Inc. (WTI): WTI is engaged in the exploration and production of oil and natural gas, primarily in the Gulf of Mexico area. Insiders currently hold 44.8 million shares or 59.0% of outstanding shares. During the past week, five directors purchased a total of 13,970 shares for $0.25 million. This is significant because it is a significant pick-up of insider buying given that insiders purchased only a total of 20,468 shares in the past year (selling none), with the latest prior purchase in June of this year.
Midway Gold Corp. (MDW): MDW is a Canadian company engaged in the acquisition, exploration and development of gold and silver properties in NV and WA. Insiders currently hold 24.7 million shares or 22.3% of outstanding shares. During the past week, Director George Hawes sold 118,800 shares (regular sell) for $0.27 million. This represents a pick-up in insider selling given that insiders only sold a total of only 0.98 million shares during the past year (buying 118,000 shares), of which Director Hawes sold 0.67 million shares during the past three weeks alone.
Wescorp Energy Inc. (WSCE): WSCE operates as a water technology company, holding three technologies, including H2Omaxx, an oil-water separation technology, the HCXT oil-solids technology and a desalinization technology. It is currently focused on the commercialization of H2Omaxx, which reduces hydrocarbon contaminated water treatment and disposal costs for oil and gas producers. Insiders currently hold 9.9% of outstanding shares. During the past week, CEO Everett Biles purchased 1.53 million shares for $0.14 million. This is significant in that it is the first insider transaction since March of 2010.
Kinder Morgan Inc. (KMI): KMI is a provider of energy transportation and storage services in North America. It handles energy products like natural gas, refined petroleum products, crude oil, ethanol, coal and carbon dioxide (CO2). During the past week, Chairman and CEO Richard Kinder purchased 19.72 million shares of Class P Common Stock for $500 million, increasing his holdings to 21.55 million 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.
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.