Analyzing Wednesday And Thursday's Noteworthy Insider Buys And Sells

by: GuruFundPicks

Insiders reported on Wednesday that they bought and sold stock in over 160 separate transactions in over 90 different companies. These transactions have to be reported within two days of the trade, so the transactions occurred sometime earlier this week. We culled through these 160 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 on Wednesday and part-of-the-day Thursday; 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):

NII Holdings Inc. (NASDAQ:NIHD): NIHD provides wireless communications services under the Nextel brand name to businesses and individuals in Mexico, Brazil, Argentina, Peru, and Chile. On Wednesday, President of Nextel Mexico Peter Foyo filed SEC Form 4 indicating that he purchased 37,126 shares for $0.7 million, pursuant to a 10b5-1 plan, increasing his holdings in the company to 107,175 shares. Earlier, we reported just at the beginning of January that the President of Nextel Argentina Ruben Butvilofsky purchased 15,275 shares, pursuant to a 10b5-1 plan, so that overall insiders have purchased almost 100,000 shares since the beginning of December. In comparison, the last time insiders purchased shares was more than three years ago.

NIHD shares have been extremely weak lately, cut in half in the past year, as earnings have continued to disappoint, missing analyst estimates every quarter and down from $2.27 in 2009 to a projected $1.50 this year. Its shares trade at a discount 12-13 forward P/E and 1.1 P/B compared to averages of 11.6 and 3.7 respectively for its non-U.S. wireless group peers, while earnings are projected to rise slightly to $1.58 in 2012 from $1.50 this year.

Seagate Technology (NASDAQ:STX): STX manufactures hard disk drives for the enterprise, desktop, mobile computing, and consumer electronics markets. On Wednesday, Chairman & CEO Stephen Luczo filed SEC Form 4 indicated that he exercised options to acquire 20,000 shares, and then sold those and an additional 181,602 shares for a total of $4.0 million, pursuant to 10b5-1 plans. This is in addition to what we reported just earlier this week, that insiders had sold a total of 1.03 million shares for $20.1 million in the preceding two weeks. In comparison, insiders have sold a total of 3.8 million shares in the past year. The strong pick-up in selling has coincided with the recent run-up in the stock in the last two to three weeks after the company announced strong guidance on January 4th, stating that it expected Q2 (December 2011) revenues at $3.1-$3.2 billion and Q3 (March 2012) revenues at $4.2-$4.5 billion versus the consensus estimates of $2.8 billion and $3.8 billion respectively.

Skyworks Solutions Inc. (NASDAQ:SWKS): SWKS is the industry's leading wireless semiconductor company focused on radio frequency (NYSE:RF) and semiconductor solutions for mobile communications applications. These RF semiconductors are essential for 3G and 4G platforms, and the company continues to benefit from the ongoing explosive growth in the smart phone market, a trend that is likely to last many years as smart phones gain market share worldwide. On Wednesday, CEO David Aldrich filed SEC Form 4 exercised options to acquire 50,000 shares, and then sold those and an additional 30,000 shares for $1.7 million. In comparison, the last time insiders made a major purchase at SWKS was over three years ago. SWKS has been in a strong rally mode recently, up over 35% YTD, aided by a strong Q1 that it reported just last week. It trades at a current 11.3 P/E on a TTM basis and at a forward 10-11 P/E, about mid-range based on its historic range. Meanwhile, earnings have increased from 69c in 2009 to $1.89 in 2011 and are projected to increase to $2.05 in 2013.

Advanced Cell Technology, Inc. (ACTC.OB): ACTC is a development-stage biotech focused on the development and commercialization of human embryonic and adult stem cell technology in the field of regenerative medicine. On Wednesday, Chief Science Officer Robert Lanza filed SEC Form 4 indicating that he sold 7.7 million shares for $1.5 million, ending with 26.0 million shares after that sale. ACTC shares have rallied strongly since the beginning of the year, up from 8.2 cents at the end of last year to currently in 14-15c range after rising above 20c just earlier this week.

Intel Corp. (NASDAQ:INTC): INTC is one of the world's largest manufacturers of semiconductor chips, including microprocessors, chipsets, network processors, motherboards, non-volatile memory and storage. Its products are used in notebooks, netbooks, desktops, servers, workstations, storage products, embedded applications, communications products, consumer electronics devices, and handhelds. On Wednesday, three insiders filed SEC Forms 4 indicating that they exercised options and sold a total of 0.77 million shares for $20.5 million. The sellers included CFO Stacy Smith (541,940 shares), SVP William Holt (72,923 shares) and SVP Brian Krzanich (151,640 shares), with the shares sold by SVP Holt pursuant to a 10b5-1 plan.

INTC shares have traded generally range-bound for the last ten years, between $15 and $30, and are currently approaching the top-end of that range, up almost 25% in the past year. Compared to its peers in the semiconductor space, INTC is undervalued, trading at 10-11 forward P/E and 2.7 P/B compared to averages of 14.6 and 3.7 respectively, while earnings are projected to rise modestly from $2.53 in 2011 to $2.60 in 2013. Also, it has an attractive annual dividend yield of 3.1%.

Alkermes Plc (NASDAQ:ALKS): ALKS, an integrated biotech company, develops injectable and oral products for the treatment of central nervous system (NYSE:CNS) disorders, addiction, diabetes and autoimmune disorders. On Wednesday, COO Gordon Pugh filed SEC Form 4 indicating that he exercised options and sold the resulting 15,000 shares for $0.26 million, and ending with 26,002 shares (and 35,000 employee stock options) after the sale. Overall, insiders sold a total of 0.63 million shares in the past year. ALKS revenues are on a strong growth trajectory, up over 40% year-over-year for the last two quarters, based on rising sales of Risperdal Consta for schizophrenia and bipolar disorder, and they are projected to double in 2011 and then rise over 40% in 2012. However, it is expecting to keep posting losses at least until 2012, and it trades at 8 times annual revenue on a TTM basis compared to the average of 235.7 for the biotech group.

Coca-Cola Enterprises (NYSE:CCE): Coca-Cola's product portfolio includes the world's biggest brands and beverages. It is the third largest Coca-Cola bottler in the world, and its portfolio includes a full range of beverage categories, including energy drinks, sparkling waters, juices, sports drinks, coffee-based beverages and teas. On Thursday, EVP & President of European Group Hubert Patricot filed SEC Form 4 indicating that he exercised options and sold the resulting 49,125 shares for $1.3 million, ending with 91,220 shares (and 7,338 stock option awards) after the sale. Overall, insiders sold a total of 0.51 million shares during the past year. CCE trades at 11-12 forward P/E and 2.7 P/B compared to averages 15.5 and 3.6 for its peers in the soft beverages group.

On top of these, some additional large insider trades last week included a $1.5 million sale by Chief Risk Officer James Hogan at JPMorgan Chase & Co. (NYSE:JPM); a $1.4 million sale by two insiders, Directors William Morean and Thomas Sansone at contract electronics manufacturer Jabil Circuit Inc. (NYSE:JBL), with Director Morean's sale pursuant to a 10b5-1 plan; a $1.0 million sale by two insiders, Director Irwin Jacobs and EVP Derek Aberle at Qualcomm Inc. (NASDAQ:QCOM), a designer of CDMA-based, RF, and power management IC's for system software used in wireless handsets, modem cards, and networks; a $1.6 million sale by two insiders, Director Jerald Fishman and VP & General Counsel Scott Hover-Smoot, at fabless semiconductor company Xilinx Inc. (NASDAQ:XLNX); and a $1.8 million sale by Chief Technology Officer Patrick Melampy at Acme Packet Inc. (NASDAQ:APKT), a manufacturer of session border controllers, load balancers, routing proxies and multi-service security gateways.

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.

Credit: Fundamental data in this article were based on SEC filings, I-Metrix® by Edgar Online®, Zacks Investment Research, Thomson Reuters and The information and data is believed to be accurate, but no guarantees or representations are made.

Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.

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.