Analyzing Wednesday's Noteworthy Insider Buys And Sells

by: GuruFundPicks

Insiders reported on Wednesday that they bought and sold stock in over 280 separate transactions in over 160 different companies. These transactions have to be reported within two days of the trade, so the transactions occurred sometime this week. We culled through these 280 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 (ex-healthcare and technology sectors, which are discussed separately in another article that can be accessed from our author page); 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 Wednesday, Director Donald Powell filed SEC Form 4 indicating that he purchased 18,000 shares for $0.14 million, increasing his BAC holdings to almost 70,000 shares in direct and indirect holdings. Insider buying has picked up at BAC recently, with insiders reporting purchasing a total of 78,000 shares so far in February; in comparison, insiders reporting purchasing a total of 85,000 shares in the past six months. BAC recently reported its Q4, in mid-January, with earnings in-line and revenues slightly beating estimates. The stock has recently run-up over 50% from December lows, and trades at a discount 7-8 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 $1.10 in 2013.

Las Vegas Sands Corp. (NYSE:LVS): LVS owns, develops and operates various integrated resort properties in the U.S., Macau, and Singapore. On Wednesday, two insiders filed SEC Forms 4 indicating that they exercised options and sold the resulting total of 197,000 shares for $10.2 million. The majority of the shares were sold by CFO Kenneth Kay (172,000 shares), and the remaining 25,000 shares were sold by Chief Accounting Officer Michael Quartieri. In comparison insiders sold a total of 1.7 million shares in the past year. LVS just reported in-line earnings in its Q4 report last Wednesday; the stock trades at 17-18 forward P/E and 5.1 P/B compared to averages of 13.2 and 1.9 for its peers in the gaming group, while earnings are projected to grow at a strong 22.5% annual growth rate from $2.02 in 2011 to $3.03 in 2013 compared to more modest growth rates for the rest of the group.

Mattel Inc. (NASDAQ:MAT): MAT is a designer, manufacturer and marketer of toy products sold worldwide under the Mattel, Fisher-Price and American Girl brands. On Wednesday, two insiders filed SEC Forms 4 indicating that they exercised options and sold a total of 76,500 shares for $2.5 million, pursuant to 10b5-1 plans. The sellers included CFO Kevin Farr (42,500 shares) and EVP Geoff Massingberd (34,000 shares). Insider selling has picked up at MAT recently, with insiders reporting sales of 0.73 million shares in the past six trading days. In comparison, insiders sold just over 1.1 million shares in the past six months. MAT is up 15% for the year, and it trades at 12-13 forward P/E and 4.1 P/B compared to averages of 14.2 and 2.1 for its peers in the toy manufacturers group.

Estee Lauder Co. (NYSE:EL): EL is one of world's leading manufacturers of makeup, fragrance and skin/hair care products in over 150 countries, sold under owned and licensed brands. On Wednesday, two insiders filed SEC Forms 4 indicating that they exercised options and sold the resulting 195,224 shares for $11.2 million. The majority of the shares (131,668) were sold by Group President Cedric Prouve and the remaining 63,556 shares were sold by EVP Alexandra Trower. In comparison, insiders sold a total of 1.2 million shares in the past year. EL has been among the strongest performers, up almost six-fold from the lows of the 2008-09; the company just reported an in-line Q4 last Friday, and the shares trade 22 forward P/E and 8.4 P/B compared to averages of 17.2 and 2.8 for the cosmetics & toileteries group.

On top of these, some additional large insider sales on Tuesday included a $3.2 million sale by six insiders at integrated oil & gas company Hess Corp. (NYSE:HES), with the shares sold to satisfying tax withholdings on vesting of shares of restricted stock; and a $1.6 million sale by Executive Chairman Ronald Shaich, pursuant to a 10b5-1 plan, at bakery-cafe chain operator Panera Bread Co. (NASDAQ:PNRA). Also, insider bought shares in construction and mining equipment manufacturer Caterpillar Inc. (NYSE:CAT), with Director Eugene Fife filing SEC Form 4 indicating that he purchased 1,000 shares for $113,050; insider buying is rare at CAT, with insiders purchasing only an additional 2,000 shares in the past year.

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, 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.

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