Analyzing Wednesday's Noteworthy Insider Buys And Sells

by: GuruFundPicks

Insiders reported yesterday, on Wednesday December the 7th, that they bought and sold $425 million of stock in over 420 separate transactions in 233 different companies, including $392 million worth of stock sold and $33 million worth of stock bought. These transactions have to be reported within two days of the trade, so the transactions reported yesterday occurred sometime earlier this week. We culled through these 420 or so insider buys and sells (based on yesterday’s SEC Forms 3, 4, and 5 filings), as part of our daily and weekly coverage of insider trades, and present here the most notable trades reported yesterday (for a general discussion on how to interpret insider trades, please look at the end of this article):

Gilead Sciences Inc. (NASDAQ:GILD): GILD is a developer of therapeutics to treat viral, fungal, respiratory and cardiovascular diseases. Insiders currently hold 5.6 million or 0.7% of outstanding shares, and on Wednesday, CEO John Martin reported that he exercised options and sold the resulting 46,300 shares (under a 10b5-1 trading plan) for $1.9 million. This is in addition to the 54,020 shares that we reported insiders sold on Monday (including the 46,020 shares sold by CEO John Martin), and the 105,320 shares we reported as being sold by insiders just last month, so that insiders have sold a total of 205,640 shares in just over a month for almost $9 million. This is significant due to its size and is it represents a strong pick-up in insider selling given that insiders sold only an additional 69,020 shares in the remainder (almost two months) of the prior three months (buying none).

GILD shares have performed well recently, up over 10% so far this year, as recent quarter operating results have beat estimates and there is optimism about its deep pipeline of drugs under development. Its shares trade at a discount 9-10 forward P/E, and at 5.0 P/B, compared to averages of 22.2 and 11.3 respectively for the biotech group. However, shares took a hit recently over its proposed acquisition of Pharmasset Inc. (VRUS) for $137 per share, announced November 21st, as the transaction is expected to be dilutive to GILD earnings through 2014 and accretive beyond that. The acquisition of VRUS is expected to be a game-changer for GILD in terms of making it a premier player in the hepatitis C space.

GMX Resources (GMXR): GMXR is engaged in the exploration and production of oil and natural gas in the U.S. It has interests in two oil shale resources, including the Williston Basin in ND and MT, and the DJ Basin in WY. Insiders currently hold 7.3 million or 12.7% of outstanding shares and on Wednesday, four insiders reported that they bought a total of 148,000 shares for $0.23 million. This included CFO James Merrill (10,000 shares) and Directors David Lucke (33,000 shares), Jon McHugh (5,000 shares) and Ken Kenworthy (100,000 shares). This is significant in terms of the size, the number of insiders who bought, and that insider buying is relatively unusual at GMXR given that they bought only an additional 36,500 shares during the past year (selling none).

GMXR shares currently trade at the lows after a rough three years during which they have dropped from an $88 high in 2008 to below $2 currently as concerns have mounted over poor operating results (the company has missed on its earnings for each of the last four quarters) and liquidity issues. Although very speculative, GMXR holds promise due to its natural gas reserves, hence the heavy insider buying this week can be interpreted as a sign that shares may have bottomed out at these levels.

Galena Biopharma Inc. (NASDAQ:GALE): GALE, formerly known as RXi Pharmaceuticals, is a biotech company focused on developing target cancer therapies. Insiders currently hold 1.2 million or 2.8% of outstanding shares and on Wednesday CEO Mark Ahn and Principal Accounting Officer Kwang Lee reported that they bought a total of 15,000 shares. While a small purchase, it is significant in that insider buying is uncommon at GALE as the only other time in the last year that insiders bought was in April when CEO Mark Ahn bought 10,000 shares, and subsequent to that purchase shares more than doubled in the next six weeks just prior to the company announcing positive NeuVax phase 2 efficacy results. GALE shares currently trade near all-time lows, and yesterday surged more than 20% intra-day after the company announced five-year efficacy data from the ongoing NeuVax phase 2 trials.

Flotek Industries Inc. (NYSE:FTK): FTK provides oilfield chemicals, artificial lift, and down-hole drilling and production equipment to the oil and gas industry. Insiders currently hold 3.4 million shares or 7.3% of outstanding shares, and on Wednesday EVP & COO Steven Reeves reported that he sold 49,020 shares for $0.5 million. This is in addition to the 64,000 shares that we reported were sold by four insiders (including a President and three Directors) in November, so that five insiders now have sold a total of 113,020 shares in the last month. This is significant due to its size, the number of insiders selling, and in that it is a pick-up in insider selling given that over the last year insiders sold only an additional 84,500 shares. FTK shares currently trade near three-year highs, and at a premium 15 forward P/E, and at 6.7 P/B, compared to averages of 11.2 and 2.7 respectively for its peers in the oil field services group.

Reynolds American Inc. (NYSE:RAI): RAI manufactures cigarettes and other tobacco products primarily under the Camel, Doral and Kool brands. Insiders currently hold 243.1 million or 41.7% of outstanding shares. On Wednesday, British American Tobacco (NYSEMKT:BTI), beneficial owner of 242 million shares via Brown & Williamson Holdings Inc. (B&W), reported that it sold 1.4 million shares for $59 million. This is in addition to the 1.4 million shares that we reported B&W sold just last week. RAI, along with many other tobacco stocks, has been trading in all-time high territory, and is up over 150% since hitting the bottom in early 2009. Its shares currently trade at a premium 13-14 forward P/E, and at 3.6 P/B, compared to averages of 12.1 and 11.8 respectively for its peers in the tobacco group.

Akron Inc. (NASDAQ:AKRX): AKRX develops diagnostic and therapeutic pharmaceutical products, hospital drugs, and injectable pharmaceuticals in specialty areas such as ophthalmology, rheumatology, anesthesia and antidotes, among others. Insiders currently hold 6.6 million shares or 7.3% of outstanding shares, and on Wednesday, CFO Timothy Dick reported that he exercised options and sold the resulting 50,000 shares (regular sell) for $0.55 million. This is significant given the size of the sale and also since insider selling is uncommon at AKRX, and over the past three years insiders have sold only an additional 28,469 shares. AKRX shares currently trade at all-time highs, up over twelve-fold from the 2009 lows, and at a premium 29 forward P/E and 6.8 P/B compared to averages of 13.2 and 2.9 respectively for its peers in the generic drugs group.

Fortinet Inc. (NASDAQ:FTNT): FTNT develops unified threat management systems to provide security and networking functions through integrated circuits to enterprises, service providers and government entities worldwide. Its solutions are designed to integrate multiple levels of security protection, including firewall, virtual private networking, antivirus, intrusion prevention, web filtering, antispam and wide area network acceleration. Insiders currently hold 20.3 million shares or 13.3% of outstanding shares, and on Wednesday, CEO Ken Xie reported that he sold 120,000 shares (under a 10b5-1 plan) for $3.0 million.

This is in addition to the 29,998 shares that another two insiders reported selling last week, which is a strong pick-up in insider selling given that insiders sold only an additional 113,640 shares in the last three months. FTNT shares trade within striking range of its all-time high, up three-fold from its IPO price in late 2009 on the back of strong operating results every quarter recently, and it currently trades at a premium 47 forward P/E and 11.5 P/B compared to averages of 41.2 and 4.4 respectively for its peers in the integrated computer systems group.

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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