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 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):
Corning Inc. (GLW): GLW manufactures glass substrates for LCDs, optical fiber and cables for communications, and ceramic pollution control products. Its LCDs are used in high-performance displays for TVs and smartphones, including in the venerable iPad. On Wednesday, EVP Joseph Miller filed SEC Form 4 indicating that he sold 114,548 shares for $1.6 million, ending with 138,728 shares after the sale. In comparison, insiders sold 1.1 million shares during the past year. GLW shares slid heavily at the end of last month after the company reported Q4 in which it beat revenue and reported earnings in-line with estimates, but forecast slowing growth ahead due to falling prices. The stock has since been recovering, attempting to close the gap-down after the report; it trades at a steep discount of 9-10 forward P/E and 1.0 P/B compared to averages of 14.7 and 1.7 for its peers in the communications group, while earnings are projected to decline from $1.76 in 2011 to $1.50 in 2013.
Aetna Inc. (AET): AET is a diversified U.S. health care benefits company offering a range of health insurance products and related services, including medical, dental, pharmacy, behavioral health, group life, and disability plans as well as medical management capabilities and Medicaid health care management. On Wednesday, SVP William Casazza filed SEC Form 4 indicated that he sold 38,489 shares for $1.7 million, ending with 3,160 shares in direct holdings and 3,879 shares in indirect holdings after the sale. In comparison, insiders sold a total of 0.30 million shares in the past year. AET shares have fared well in recent years, currently trading within striking distance of its 3-year highs, and up almost three-fold from the depths of the 2008-09 market pullback, powered higher by earnings growth. The stock recently reported its Q4 last Wednesday, narrowly beating analyst estimates; the shares currently trade at 8-9 forward P/E and 1.5 P/B compared to averages of 11.1 and 1.9 respectively for its peers in the managed care group.
St. Jude Medical (STJ): STJ develops cardiovascular medical devices for cardiac rhythm management, atrial fibrillation, cardiac surgery, cardiology and neuromodulation. On Wednesday, Group President Michael Rousseau filed SEC Form 4 indicating that exercised options and sold the resulting 120,000 shares for $5.2 million, ending with 19,164 shares after the sale. In comparison, insiders sold a total of 1.22 million shares in the past year. STJ reported its Q4 two weeks ago, beating analyst revenue and earnings estimates; the shares have rallied since, and they currently trade at 11-12 forward P/E and 3.1 P/B compared to averages of 29.3 and 3.9 for its peers in the medical products group.
On top of these, some additional large insider sales on Tuesday included a $1.8 million sale by SVP Murray Goldberg, pursuant to a 10b5-1 plan, at biotech company Regeneron Pharmaceutical (REGN); a $1.3 million sale by COO Ganesh Moorthy at Microchip Technology Inc. (MCHP), a manufacturer of microcontrollers, application-specific standard products, and related mixed-signal and memory products for the consumer, automotive, office automation, communications and industrial markets; a $1.6 million sale by Director David Strohm at data storage vendor EMC Corp. (EMC); and a $9.6 million sale by four insiders at International Business Machines (IBM).
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 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.