We present here three noteworthy buys and nine noteworthy sells from Thursday'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 340 separate transactions in over 220 different companies that were filed with the SEC on Thursday. 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 information on how to interpret insider trades, please refer to the end of this article):
Sirius XM Radio (SIRI): SIRI provides satellite radio services in the U.S. and Canada via approximately 135 channels of commercial-free music, sports, news, talk, traffic and weather on a subscription basis. On Thursday, President and Chief Content Officer Scott Greenstein filed SEC Form 4 indicating that he exercised options and sold the resulting 6.9 million shares for $15.0 million, ending with 1.4 million shares in direct and 0.08 million shares in indirect holdings after the sale (not including derivative holdings). In comparison, insiders sold only an additional 1.4 million shares in the past year.
SIRI reported an in-line Q4 last week. Its shares have generally traded in a narrow $1.50-$2.50 band for almost a year now, and are now trading near the highs of that trading range. We have written about SIRI many times before, projecting earlier on December 12th that the bias on SIRI was to the upside. Its shares have risen almost 20% since then. It looks unlikely, however, that the current quarter can provide the backing needed for a breakout to higher ground. So, at best, look for a consolidation pattern here before the next quarter report.
CF Industries Holdings (CF): CF is a manufacturer of phosphate fertilizers, including urea, ammonia and urea ammonium nitrate in North America. On Thursday, Chairman and& CEO Stephen Wilson filed SEC Form 4 indicating that he exercised options and sold the resulting 50,000 shares for $8.9 million, under a 10b5-1 plan, ending with 139,886 shares after the sale (not including derivative holdings). In comparison, insiders sold a total of 0.56 million shares in the past year.
CF reported its Q4 just this week, on Wednesday, beating analyst revenue and earnings estimates, with profits continuing to benefit from lower natural gas prices. However, the stock has been weaker since the report on concern that the poor pricing environment in the second half of the quarter would continue in the next quarter or quarters. Shares of CF currently trade at 8 forward P/E and 2.7 P/B compared to averages of 11.6 and 4.0 for its peers in the fertilizer group.
Activision Blizzard Inc. (ATVI): ATVI publishes interactive entertainment software and peripheral products for consoles, hand-held devices and PCs. On Thursday, Chief Custom Officer Brian Hodous filed SEC Form 4 indicating that he exercised options and sold the resulting 240,000 shares for $3.0 million, ending with 204,720 shares following the sale. In comparison, insiders sold a total of 3.7 million shares in the past year (not including a 35 million share sale by Vivendi last November). ATVI reported a good Q4 last Thursday, beating revenue and earnings estimates. However, shares continue trading at discount levels at a current 13-14 P/E on a TTM basis, and at 1.4 P/B, compared to averages of 14.3 and 2.0 for its peers in the toys, games and hobby group, probably on account of the uncertainty in terms of how the gaming sector will evolve in the face of threat from mobile and social gaming.
Ariad Pharmaceuticals Inc. (ARIA): ARIA is engaged in the development of drugs that treat aggressive and advanced-stage cancer by regulating cell signaling with small molecules. It is also developing small-molecule drugs that block signal transduction pathways in cells responsible for osteoporosis and immune and inflammatory diseases. On Thursday, two insiders filed SEC Forms 4 indicating that they exercised options and sold the resulting 88,936 shares for $1.3 million, under 10b5-1 plans. The majority of the shares were sold by President of research and development and CSO Timothy Clackson (76,436 shares), and the remaining 12,500 shares were sold by SVP Raymond Keane. In comparison, insiders sold only an additional 0.07 million shares in the past year. ARIA shares have staged a strong rally since mid-December, up almost 50%, bolstered by recent broker upgrades based on the potential of its ponatinib treatment and other drugs in its pipeline.
On top of these, some additional large insider sales on Thursday included:
- a $1.7 million sale by Director Ronald Dietz at Capital One Financial (COF), a provider of consumer and commercial lending, credit card products and automobile financing;
- a $0.9 million sale by Director Donald Quest at Hudson City Bancorp Inc. (HCBK), a holding company for Hudson City Savings Bank operating via 135 branches in NJ, NY and CT;
- a $9.5 million sale by two insiders, Vice Chairman Steven Altman and Chairman and CEO Paul Jacobs, with the latter selling under a 10b5-1 plan, 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 $1.0 million sale by Director Balakrishnan Iyer at Skyworks Solutions Inc. (SWKS), the industry's leading wireless semiconductor company focused on radio frequency and semiconductor solutions for mobile communications applications; and
- a $5.7 million sale by Chief Yahoo David Filo, pursuant to a 10b5-1 plan, at Yahoo Inc. (YHOO).
Furthermore, insiders also made noteworthy buys on Thursday in:
- Genworth Financial Inc. (GNW), a leading U.S.-based international insurance company offering life and long-term care insurance, annuities, asset management services and mortgage insurance worldwide, in which two insiders, Director Steven Alesio and Director Christine Mead, purchased a total of 53,000 shares for $0.47 million;
- Titanium dioxide manufacturer Kronos Worldwide (KRO), in which Chairman Harold Simmons purchased 129,500 shares for $2.9 million; and
- Two Harbors Investment Trust (TWO), a REIT that invests in residential mortgage-backed securities and mortgage loans, in which Director Brian Taylor purchased 20,000 shares for $0.2 million.
General Discussion on Insider Trading
The reports in this series identify 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.