Analyzing Wednesday's Noteworthy Insider Buys And Sells

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 |  Includes: BAC, BPL, CA, CSCO, CVS, EL, FAST, GPS, IBM, ITW, MON, MYL, NBL, PCAR, REGN, RL, SEE, STX, TWO, WYN
by: GuruFundPicks

We present here six noteworthy buys and fourteen noteworthy sells from Wednesday's SEC Form 4 (insider trading) filings, as part of our daily and weekly coverage of insider trades. These were selected by a review of 390 separate transactions in over 215 different companies that were filed with the SEC on Wednesday. The filings are noteworthy based on the dollar amount sold, the number of insiders buying or 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):

Cisco Systems Inc. (NASDAQ:CSCO): CSCO is the worldwide leader in the manufacturing of IP-based networking and other products related to the communications and IT industry. Its products include switches, routers and other networking and communications hardware for corporate, education and government networks around the world. On Wednesday, three insiders filed SEC Forms 4 indicating that they sold a total of 585,000 shares for $11.7 million. Of these, Chairman and CEO John Chambers exercised options and sold the majority of these shares (500,000), pursuant to a 10b5-1 plan, ending with 2.4 million shares in direct and another 0.9 million shares in indirect holdings. EVP Wim Elfrink sold 60,000 shares, 50,000 of which were acquired by the exercise of options; and the remaining 25,000 shares were sold COO Gary Moore, pursuant to a 10b5-1 plan. In comparison, insiders sold a total of 2.97 million shares in the past year.

CSCO released its FQ2 (January) report last week, beating revenue and earnings estimates; the stock, however, has flat-lined since the report over concerns about its flattish guidance for FQ3. CSCO shares currently trades at 10 forward P/E and 2.3 P/B compared to averages of 24.9 and 2.4 for its peers in the computer networking group. Also, it yields an attractive 1.6% dividend yield, almost non-existent among its peers in the group.

Regeneron Pharmaceutical (NASDAQ:REGN): REGN develops medicines for the treatment of serious medical conditions. It has two products, ARCALYST and EYLEA, on the market, and additional in development to treat inflammatory conditions, allergic and immune conditions, and cancer. On Wednesday, three insiders filed SEC Forms 4 indicating that they sold a total of 94,018 shares for $10.3 million, with a portion of the shares acquired by the exercise of options, and 15,000 of the shares being sold under a 10b5-1 plan. The majority of the shares (52,284) were sold by SVP Neil Stahl, with Director Alfred Gilman (26,734 shares) and Director Joseph Goldstein (15,000 shares) selling the rest. This is on top of the sale of 60,695 shares that we reported just last month, on January 12th, so that in total insiders recently have sold a total of over 0.26 million shares in the last five weeks. In comparison, insiders reported selling a total of 0.87 million shares in the past year.

REGN shares have been among the strongest performers among mid-cap biotech companies, doubling YTD so that at its peak earlier this week it had de-facto become a large-cap biotech at over $10 billion in market-cap. The strong performance is based on string of positive news on its EYLEA drug, first when on January 4th it announced that Express Scripts Inc. was distributing its EYLEA drug via a subsidiary. Later, in an update on January 10th, REGN disclosed that the initial launch of its EYLEA drug had exceeded expectations with sales projected at $24-$25 million in 2011 versus analyst projections of $5 million. And then just earlier this week, on Monday, the company released a phenomenal Q4 in which it beat its revenue and earnings (loss) estimates, and more importantly guided EYLEA US sales to $250-$300 million v/s prior guidance of $140-$160 million. The stock looks very extended, having risen ten-fold in the current rally that began from the 2008/09 bottom near $11, and it is likely that at best it will consolidate its gains in the short-term.

CVS Caremark Corp. (NYSE:CVS): CVS is a leading integrated pharmacy services provider in the U.S. It includes the nation's largest pharmacy chain with over 7,100 pharmacy drugstores in 41 states and D.C. Also, it provides pharmacy benefit management services to employers, insurance companies, unions, government employee groups, managed care organizations and other sponsors of health benefit plans, as well as to individuals. On Wednesday, two insiders filed SEC Forms 4, with EVP Per Lofberg indicating that he purchased 46,400 shares for $2.0 million, and SVP & CIO Stuart McGuigan indicating that he exercised options and sold the resulting 30,606 shares for $1.3 million. Insider buying is rare at CVS, with this being the only purchase in the past year. Insider selling in comparison is more common with a total of 0.38 million shares sold in the past year and 3.26 million shares in the past two years.

CVS just reported an in-line Q4 last week; its shares trade at all-time highs, at a discount 12 forward P/E and 1.5 P/B compared to averages of 14.9 and 3.1 for its peers in the retail drug stores group, while earnings are projected to rise at a 14.6% compound growth rate from $2.80 in 2011 to $3.68 in 2012.

Two Harbors Investment (NYSE:TWO): TWO is a REIT that focuses on investing in, financing, and managing residential mortgage-backed securities and related investments. On Wednesday, two insiders filed SEC Forms 4 indicating that they purchased a total of 55,000 shares for $0.55 million. The majority of the shares were purchased by CEO Thomas Siering (50,000 shares), and the rest by VP & Co-CIO William Roth. This is on top of the 7,200 shares purchase that we reported on just yesterday. In comparison, insiders purchased a total of 0.45 million shares in the past year. TWO trades at a current 6.5 P/E on a TTM basis, and 1.1 P/B compared to averages of 7.7 and 0.9 for its peers in the mortgage trust REIT group.

On top of these, some additional large insider sales on Wednesday included:

  • a $47.9 million sale by Chairman of the Board Samuel Palmisano at multinational technology and consulting company International Business Machines (NYSE:IBM);
  • a $8.4 million sale by CEO Fabrizio Freda, pursuant to 10b5-1 plans, at Estee Lauder Co. (NYSE:EL), one of world's leading manufacturers of makeup, fragrance and skin/hair care products in over 150 countries, sold under owned and licensed brands;
  • a $3.5 million sale by Executive Chairman Robert Coury, pursuant to a 10b5-1 plan, at Mylan Inc. (NASDAQ:MYL), one of the world's leading developers of generic and branded drugs, providing products that cover a vast array of therapeutic categories to customers in over 150 countries and territories;
  • a $3.5 million sale by SVP Ted Brown at Noble Energy Inc (NYSE:NBL), a leading independent energy company, engaged in the acquisition, exploration, development, production, and marketing of crude oil, natural gas, and natural gas liquids in the U.S., and internationally in Argentina, China, Ecuador, Equatorial Guinea, the Mediterranean Sea, the North Sea and Vietnam;
  • a $3.3 million sale by two insiders, pursuant to 10b5-1 plans, at Monsanto Co (NYSE:MON), a manufacturer of corn and other crop seeds and crop protection products for growers worldwide;
  • a $2.3 million sale by two insiders at premium apparel, accessories, fragrances, and home furnishings provider Ralph Lauren Corp. (NYSE:RL);
  • a $1.3 million sale by EVP David Richarz at Seagate Technology (NASDAQ:STX), a manufacturer of hard disk drives for the enterprise, desktop, mobile computing, and consumer electronics markets;
  • a $1.3 million sale by EVP Steven Rucinski at Fastenal Co. (NASDAQ:FAST), a wholesaler and retailer of industrial and construction supplies sold through 2,566 stores in the U.S., Canada, Mexico, the Dominican Republic, Puerto Rico, Singapore and China;
  • a $1.2 million sale by EVP & CFO Sabrina Simmons, pursuant to a 10b5-1 plan, at Gap Inc. (NYSE:GPS), the operator 3,246 Gap, Old Navy and Banana Republic apparel stores worldwide;
  • a $1.1 million sale by EVP George Fischer, pursuant to a 10b5-1 plan at CA Inc. (NASDAQ:CA), a premier international developer of information technology management software products that operate on a range of hardware platforms and operating systems;
  • a $1.1 million sale by Director Thomas Plimpton at Paccar Inc. (NASDAQ:PCAR), a designer, manufacturer, and distributor of light-, medium-, and heavy-duty trucks and related aftermarket parts primarily in the United States and Europe; and
  • a $1.0 million sale by President Franz Hanning, pursuant to 10b5-1 plans, at vacation ownership property management and resort company Wyndham Worldwide Corp. (NYSE:WYN).

Furthermore, insiders also made noteworthy buys on Wednesday in:

  • Bank of America (NYSE:BAC), 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, in which Director Donald Powell purchased 10,000 shares for $79,500;
  • Buckeye Partners LP (NYSE:BPL), an MLP engaged in wholesale distribution and transportation of refined petroleum products via a 5,400-mile pipeline system, in which two insiders purchased a total of 2,658 shares for $0.16 million;
  • Illinois Tool Works Inc. (NYSE:ITW), a manufacturer of plastic and metal fasteners and fastening tools for the construction, automotive, and appliance markets, in which Director Kevin Warren purchased 1,000 shares for $55,880; and
  • Sealed Air Corp. (NYSE:SEE), a manufacturer of packaging and related materials and systems for food, industrial, medical and consumer applications, in which Director Patrick Duff purchased 25,000 shares for $0.5 million.

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.

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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