Insiders reported that on Tuesday, January the 17th, they bought and sold stock in over 200 separate transactions in over 105 different companies. These transactions have to be reported within two days of the trade, so the transactions occurred sometime near the end of last week. We culled through these 200 or so insider buys and sells (based on 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 Tuesday; notable based on the dollar amount sold, the number of insiders selling, and based on whether the overall buying or selling represents a strong pick-up based on historical buying and selling in the stock (for more info on how to interpret insider trades, please refer to the end of this article):
Apollo Group Inc. (APOL): APOL, probably more known by one of its subsidiaries, the University of Phoenix, provides online and on-campus educational programs and services at the undergraduate, masters and doctoral levels. On Tuesday, Vice Chairman of the Board Peter Sperling filed SEC Forms 4 indicating that he sold a total of 375,000 shares for $21.4 million. Overall, insiders sold a total of 0.75 million shares in the past three months. APOL trades at 14-15 forward P/E and 5.5 P/B compared to averages of 13.3 and 3.4 for its peers in the schools group, while earnings are projected to fall from $4.94 in 2011 to $3.68 in 2013.
Mylan Inc. (MYL): MYL is one of the world's leading developers of generic and branded drugs, providing products that cover a vast array of therapeutic categories to customers in over 150 countries and territories. Also, through its India-based subsidiary, it is also one of the world's largest manufacturers of active pharmaceutical ingredients (API). On Tuesday, Executive Chairman Robert Coury filed SEC Form 4 indicating that he exercised options (in accordance with a 10b5-1 plan) and then sold the resulting 150,000 shares for $3.3 million. Overall, insiders sold a total of 0.45 million shares in the past year, and after the sale, Executive Chairman Coury indicated that he had 0.79 million shares. MYL shares are within striking range of its recent highs, and it trades at 9-10 forward P/E and 2.6 P/B compared to the averages of 13.2 and 2.9 for its peers in the generics drug group, while earnings are projected to rise at a 21.8% annual rate from $1.61 in 2010 to $2.39 in 2012.
Northern Trust Corp. (NTRS): NTRS is a leading international provider of investment management, asset and fund administration, and fiduciary and banking solutions for corporations, institutions and affluent individuals. On Tuesday, Vice Chairman Sherry Barrat filed SEC Form 4 indicating that she exercised options and sold the resulting 35,614 shares for $1.5 million, pursuant to a 10b5-1 plan. Overall, insiders sold only an additional 58,942 shares in the past year. NTRS trades at 12-13 forward P/E and 1.4 P/B compares to averages of 16.8 and 0.7 for its peers in the mid-west banks group, while earnings are projected to rise at a 28.5% annual rate from $2.01 in 2011 to $3.32 in 2013.
Monsanto Co (MON): MON is a manufacturer of corn and other crop seeds and crop protection products for growers worldwide. On Tuesday, two insiders filed SEC Forms 4 indicating that they sold a total of 178,378 shares for $14.3 million, with the large majority (168,460 shares) sold by Chairman and CEO Hugh Grant after exercising options and under a 10b5-1 trading plan. Overall, during the past year, insiders sold a total of 0.55 million shares. MON trades at 19-20 forward P/E and 3.9 P/B compared to averages of 10.1 and 1.7 for its peers in the agricultural products group, while earnings are projected to increase at a rapid 17.7% annual rate from $2.96 in 2011 to $4.10 in 2013. The stock has mounted a huge rally since the beginning of the year, up 15% YTD, after the company reported a blockbuster November quarter on January 5th morning in which both revenues and earnings beat estimates by a wide margin.
On top of these, some additional large insider trades on Tuesday included a $3.8 million sale, pursuant to a 10b5-1 plan, by Director and 10% owner Lloyd Miller at Internet-based postage solutions provider Stamps.com Inc. (STMP); a $1.0 million sale by VP David Ayre at leading athletic footwear, apparel, and equipment provider Nike Inc. (NKE); and a $1.1 million sale, pursuant to a 10b5-1 plan, by CVP of Strategy and Corporate Development John Kehl at medical products provider Edwards Lifesciences Corp. (EW).
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 10% or 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 non-public 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 may be 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.
Credit: Fundamental data in this article were based on SEC filings, I-Metrix by Edgar Online, Zacks Investment Research, Thomson Reuters and Briefing.com. The information and data is believed to be accurate, but no guarantees or representations are made.
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.