Analyzing Noteworthy Buys And Sells Among Mega-Cap Stocks Thursday

Includes: BAC, CAT, GE, T, UPS, USB
by: GuruFundPicks

We covered Thursday's noteworthy insider buys and sells in a prior article earlier today. The following are additional noteworthy insider trades reported on Thursday, but limited to extremely large-cap or mega-cap companies. Mega-caps are usually the biggest companies in the investment universe, and are generally household names. There is no exact definition, but generally they are thought of as companies with market-caps in excess of $100 billion, which number between 80 and 90 among U.S. exchange traded equities. For the purposes of this article, we have extended that range to over $50 billion, and present below the most notable trades reported on Thursday among extremely large-cap or mega-cap stocks; 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):

Bank of America (NYSE:BAC): BAC is a global financial services company providing banking and financial services to individuals, small- and middle-market businesses, corporations and governments primarily in the U.S., and also internationally in over 40 foreign countries. On Thursday, Director Susan Bies filed SEC Form 4 indicating that she purchased 50,000 shares for $0.37 million, adding to her prior 33,043 share position in the company. Insider buying is rare at BAC, as in comparison, insiders purchased a total of 77,000 shares in the past year. BAC recently reported its Q4, with earnings in-line and revenues slightly beating estimates. The stock trades have recently run-up over 50% from December lows and trades at a discount 7 forward P/E and 0.3 P/B compared to averages of 9.6 and 0.7 for the major regional banks group, while earnings are projected to fall from $1.30 in 2011 to $1.11 in 2013.

US Bancorp (NYSE:USB): USB is a super-regional financial services holding company, operating full-service branch offices and ATMs, and providing a full range of banking and financial services including brokerage, insurance, investment, mortgage, trust and payment services to individuals, institutions and corporations. On Thursday, three insiders, Vice Chairman Joseph Hoesley (20,639 shares), EVP Jennie Carlson (66,952 shares) and EVP Lee Mitau (5,000 shares), filed SEC Forms 4 indicating that they sold a total of 92,591 shares for $2.65 million, with the majority of the shares sold acquired as a result of exercising options. In comparison, insiders sold a total of 0.59 million shares in the past year. USB is undervalued, trading at a current 12.3 P/E on a TTM basis, and at 1.7 P/B, compared to the averages of 11.8 and 0.9 for its peers among major regional banks.

AT&T Inc. (NYSE:T): AT&T is a global telecommunications services provider, offering local exchange, long distance, network access and wireless services to consumers, businesses and other service providers. On Thursday, four insiders, Chief Strategy Officer John Stankey (57,366 shares), Sr. EVP Donald Watts (26,586 shares), Sr. EVP Catherine Coughlin (31,423 share) and Group President Forrest Miller (66,216 shares), filed SEC Forms 4 indicating that they sold a total of 0.18 million shares for $5.4 million; the shares sold by Mr. Stankey, Mr. Watts and Ms. Coughlin were acquired as a result of exercising options. This is in addition to the sale of 66,279 shares by Mr. Miller that we reported just earlier this week, so that overall insiders this week reported selling 0.25 million shares. In comparison, insiders sold only an additional 37,000 shares in the past year. AT&T has been almost flat during the last decade, and it currently trades at 11-12 forward P/E and 1.6 P/B compared to averages of 14.6 and 1.7 for the diversified communications group.

Caterpillar Inc. (NYSE:CAT): CAT is the world's largest manufacturer of construction and mining equipment, diesel and natural gas engines and industrial gas turbines. On Thursday, Group President Steven Wunning filed SEC Form 4 indicating that he exercised options and sold the resulting 126,000 shares for $14.0 million, ending with 75,863 shares in direct and 951 shares in indirect holdings after the sale. In comparison, insiders sold a total of 0.42 million shares in the past year. CAT just last week reported a stellar Q4, obliterating analyst earnings estimates ($2.32 v/s $1.77) and also beating on revenue ($17.24 billion v/s $16.02 billion), and guiding both revenue and earnings above consensus. The stock currently trades at 10-11 forward P/E and 5.5 P/B compared to averages of 10.6 and 2.5 for the construction and mining machinery group.

United Parcel Service (NYSE:UPS): UPS delivers packages and documents throughout the U.S. and over 220 other countries. On Thursday, SVP Christine Owens filed SEC Form 4 indicating that she sold 20,569 shares for $1.6 million, pursuant to a 10b5-1 plan, and ending with no shares after the sale. In comparison, insiders sold a total of 82,342 shares in the past year. UPS just this Tuesday reported a mixed Q4, beating on earnings ($1.28 v/s $1.25) and missing on revenues ($14.2 billion v/s $14.4 billion). Its shares currently trade at 14 forward P/E and 9.5 P/B compared to averages of 12.3 and 2.5 for the air freight group.

General Electric Co. (NYSE:GE): GE is one of the largest and most diversified industrial conglomerates in the world, manufacturing a wide variety of products for the utility, consumer, industrial, healthcare, transportation and other industries. On Thursday, Director Alan Lafley filed SEC Form 4 indicating that he purchased 10,000 shares for $0.19 million, increasing his holdings to 62,075 shares in direct and 18,446 shares in indirect holdings. Insider buying is rare at GE, and in fact the last time an insider bought GE stock was in May of 2011, and in total insiders purchased 45,000 shares in the past year. GE trades at 10-11 forward P/E and 1.7 P/B compared to averages of 14.8 and 1.7 for its peers in the diversified conglomerate group.

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 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 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.

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.