Insiders reported on Tuesday that they bought and sold stock in over 360 separate transactions in over 210 different companies. These transactions have to be reported within two days of the trade, so the transactions occurred sometime after mid-week last week. We culled through these 360 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 in the healthcare and technology sectors; 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):
Axcelis Technologies Inc. (ACLS): ACLS manufactures ion implantation, dry strip, photo-stabilization and rapid thermal process processing equipment used in the fabrication of semiconductors. On Tuesday, EVP Lynnette Fallon filed SEC Form 4 indicating that she sold 20,000 shares for $35,600, ending with 113,366 shares after the sale. While a small sale, it is significant only in that insider selling is rare at ACLS, and in fact, the only other time insiders sold in the past year was a 49,740 share sale in early February of last year, just as the shares had started to tank from the near $4 high in January to a low of $1 in early October. ACLS just reported its Q4 last week, beating analyst earnings (1c loss v/s 4c loss) and missing revenue estimates ($60 million v/s $64 million). The stock currently trades at 0.9 P/B and 0.5 PSR compared to averages of 1.6 and 1.4 for its peers in the electronics manufacturing machines group.
Advanced Micro Devices (AMD): AMD is the second largest producer of microprocessors, GPUs and chipsets in the world, behind market leader Intel Corp. (INTC). On Tuesday, SVP Emilio Ghilardi filed SEC Form 4 indicating that he exercised options and sold the resulting 24,000 shares for $0.17 million, ending with 6,756 shares after the sale. This is on top of the 21,728 shares that two insiders (Mr. Ghilardi and SVP Harry Wolin) reported selling just at the end of last week, so that overall insiders have sold a total of 45,728 shares in the last four trading days. In comparison, insiders sold a total of 0.39 million shares in the past year. AMD shares have recently been surging, up over 50% from the recent lows in mid-December; the company recently reported its Q4, beating analyst earnings (19c v/s 16c) estimates. The stock currently trades at 9 forward P/E and 3.3 P/B compared to averages of 22.4 and 1.9 for the electronic components semiconductor group.
Broadcom Corp. (BRCM): Broadcom provides a portfolio of system-on-a-chip (SoC) and software solutions for wired and wireless communications to manufacturers of computing and networking equipment, digital entertainment and broadband access products, and mobile devices. On Tuesday, Director Robert Finocchio filed SEC Form 4 indicating that he purchased 5,000 shares for $0.19 million, increasing his holdings to 8,654 shares. This is significant in that it is the only insider purchase in at least the last two years. Furthermore, this may be even more significant given that just two weeks ago Mr. Finocchio sold $2.2 million worth of stock in chip-maker Altera Corp. (ALTR), where he also serves as Director.
Meanwhile, insiders also filed SEC Forms 4 on Tuesday indicating that they sold 10,600 shares, in-line given that insiders sold a total of 1.16 million shares in the past year. BRCM shares have staged a strong rally since the company reported its Q4 almost two weeks ago, beating analyst revenue ($1.82 billion v/s $1.8 billion) and earnings (68c v/s 65c) estimates. The shares currently trade at a discount 12-13 forward P/E compared to the 14.4 average for its peers in the communications semiconductor group, while earnings are projected to rise slightly from $2.89 in 2011 to $3.07 in 2013.
Cognizant Tech Solutions (CTSH): CTSH provides custom IT Consulting, Technology and Outsourcing Services for companies. On Tuesday, COO Rajeev Mehta filed SEC Form 4 indicating that he exercised options to acquire 50,000 shares and sold those and an additional 14,725 shares for $4.8 million, pursuant to a 10b5-1 plan, ending with 49,012 shares after the sale. In comparison, insiders sold a total of 0.26 million shares in the past year. CTSH reported its Q4 earlier today, beating earnings by 1c and guiding in-line. Its shares were weak following the report, and they currently trade at 17-18 forward P/E and 5.5 P/B compared to averages of 26.4 and 4.3 for the business software and services/business process outsourcing (BPO) group.
Vertex Pharmaceuticals (VRTX): VRTX engages in the discovery, development and commercialization of small molecule drugs for the treatment of hepatitis C, cystic fibrosis, epilepsy and other life-threatening diseases. On Tuesday, Executive Chairman Matthew Emmens filed SEC Form 4 indicating that he sold 56,000 shares for $2.1 million, pursuant to a 10b5-1 plan. VRTX reported its Q4 last Thursday, beating revenue and earnings estimates. The stock currently trades at 10-11 forward P/E and 10.0 P/B compared to averages of 22.2 and 11.3 for its peers in the biotech group, while earnings are projected to rise from 8c in 2011 to $3.23 in 2012 and $3.45 in 2013.
On top of these, some additional large insider trades on Tuesday included:
- a $16.6 million sale by four insiders, including Vice Chairman Steven Altman, Director Robert Kahn, EVP Andrew Gilbert, and EVP Jing Wang, at Qualcomm Inc. (QCOM), a designer of CDMA-based, RF and power management ICs for system software used in wireless handsets, modem cards and networks;
- a $3.6 million sale by two insiders, President Lew Moorman and Director James Bishkin, pursuant to 10b5-1 plans, at hosting services provider Rackspace Hosting Inc. (RAX);
- a $3.0 million sale by two insiders, Vice Chairman William Teuber and EVP John Mollen, at data storage vendor EMC Corp. (EMC); and
- a $1.4 million sale by SVP David Beier at leading biotech company Amgen Inc. (AMGN).
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, 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.