Insiders reported on Tuesday and Wednesday that they bought and sold stock in over 500 separate transactions in over 265 different companies. These transactions have to be reported within two days of the trade, so the transactions occurred sometime after late last week. We culled through these 500 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 Tuesday and Wednesday, ex the technology sector since that was covered by us separately in another article - 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):
Wells Fargo & Company (WFC): WFC is a diversified financial services holding company with 9,000 offices primarily in the U.S., and provides retail, commercial and corporate banking services. On Wednesday, Sr. EVP Kevin Rhein filed SEC Form 4 indicating that he sold 43,000 shares for $1.3 million, ending with 64,842 shares in direct and another 40 shares in indirect holdings. Overall, insiders sold a total of 143,000 shares in the last three months, and 194,224 shares in the past year. WFC trades at a discount 8-9 forward P/E, and at 1.1 P/B, compared to averages of 9.6 and 0.7 for the major regional banks group, while earnings are projected to rise at a 13.3% annual rate from $2.82 in 2011 to $3.62 in 2013.
E*Trade Financial Corp. (ETFC): ETFC is a financial services company offering online brokerage, investing and relating banking solutions for retail, corporate and institutional customers. On Wednesday, Director Frank Petrilli filed SEC Form 4 indicating that he purchased 11,500 shares for $97,152, increasing his holding in the company to 13,483 shares. Overall, insiders at ETFC purchased 7,975 shares in the last three months, and 124,375 shares in the past year. ETFC currently trades at 12-13 forward P/E and 0.5 P/B compared to averages of 14.8 and 1.5 for its peers in the investment banking group. Mr. Petrilli on Monday was named the new chairman for E*Trade; with past ties to Toronto-Dominion Bank, which owns 45% of ETFC's chief rival TD Ameritrade, it is speculated that the appointment would perhaps ease the way for an eventual merger between the two retail brokerage giants.
Fulton Financial Corp. (FULT): FULT is a multi-bank financial holding company that provides retail and commercial banking and investment management and trust services to consumers and businesses in PA, NJ, MD, DE and VA. On Tuesday, Director Albert Morrison filed SEC Form 4 indicating that he purchased 4,000 shares for $37,320, increasing his position to 7,000 shares. Overall, insiders purchased 18,450 shares in the past year. FULT reported a disappointing Q4 just over two weeks ago, on January 17th; the stock has been weak since the report, and trades at a current 13 P/E on a TTM basis, and at 0.9 P/B, compared to averages of 13.5 and 0.9 for its peers in the northeast banks group.
Boeing Co. (BA): BA is among the world's largest manufacturers of passenger aircraft, and it is the largest exporter by value in the U.S. Besides passenger or commercial aircraft, BA is also a leading player in the aerospace and defense group, manufacturing military aircraft, missiles and information and communication systems. On Wednesday, EVP James Albaugh filed SEC Form 4 indicating that he sold 20,000 shares for $1.5 million, ending with 242,249 shares in direct and over 26,000 shares in indirect holdings in BA. Overall, insiders purchased only an additional 5,546 shares in the past year. BA just last week reported its Q4, beating earnings ($1.32 v/s $1.01) and revenue ($19.55 billion v/s $19.36 billion). Its shares currently trade at 13-14 forward P/E and 16.0 P/B compared to averages of 10.1 and 2.6 for its peers in the aerospace and defense group.
Real D Inc. (RLD): RLD is a leading global licensor of stereoscopic (3D) technologies, enabling a premium 3D viewing experience in the theater, the home and elsewhere. On Tuesday, Director Joshua Greer filed SEC Form 4 indicating that he sold 100,950 shares for $0.9 million. In comparison, insiders sold a total of 0.6 million shares in the past year. RLD just yesterday after the market-close reported a strong Q4, obliterating analyst earnings (5c v/s 4c loss) and revenue ($49 million v/s $43 million) estimates. The stock was up almost 15% today, and it currently trades at a current 16-17 P/E on a TTM basis, and at 3.6 P/B, compared to averages of 25.9 and 1.7 for its peers in the technology services group.
On top of these, some additional large insider trades on Tuesday and Wednesday included a $6.8 million sale, pursuant to a 10b5-1 plan, by CEO James Gallogly at Netherlands-based chemical company Lyondellbasell Industries (LYB); a $6.4 million sale by Chairman and CEO Joseph Winkler at oil and gas field services company Complete Production Services (CPX); a $3.6 million sale by four insiders (CEO Bryan Stockton, EVP Ellen Brothers, EVP Robert Normile, and EVP Geoff Massingberd), all pursuant to 10b5-1 plans, at Mattel Inc. (MAT); a $8.6 million sale by two insiders (CFO Mark Buthman and Chief Marketing Officer Anthony Palmer) at leading consumer products company Kimberley-Clark Corp. (KMB); and a $16.3 million sale, pursuant to a 10b5-1 plan, by Vice Chairman and CEO Michael Balmuth at off-price apparel and home accessories retail chain store operator Ross Stores Inc. (ROST).
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% 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 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.
Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.