We present here 17 noteworthy buys and sells from Friday's SEC Form 4 (insider trading) filings, as part of our daily and weekly coverage of insider trades (ex- basic materials and energy and technology sectors that were covered in separate articles, hyperlinked above). These were selected by a review of 480 separate transactions in over 275 different companies that were filed with the SEC on Friday. 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):
Netspend Holdings Inc. (NTSP): NTSP provides general-purpose reloadable prepaid debit cards and related alternative financial services to under-banked customers in the U.S. On Friday, two insiders filed SEC Form 4 indicating that they sold a total of 66,558 shares for $0.47 million. The large majority of the shares sold were by EVP James DeVoglaer (55,957), pursuant to a 10b5-1 plan, and with 47,992 of those shares having been acquired by the exercise of options. In comparison, insiders sold only at additional of less than 11,000 shares in the past year.
NTSP just reported its Q4 last Thursday, beating earnings (13c v/s 12c) and guiding revenues and earnings in-line. Its shares currently trade at a current 20.2 P/E and 4.0 P/B compared to averages of 17.1 and 1.3 for its peers in the miscellaneous financial services group.
GNC Holdings Inc. (GNC): GNC operates as a specialty retailer of health and wellness products, including vitamins, minerals and other specialty supplements; and sports nutrition, diet and energy products via over 7,600 company-owned and franchise locations in the U.S. and in over 53 other countries worldwide. On Friday, three insiders filed SEC Forms 4 indicating that exercised options and sold the resulting 0.46 million shares for $14.3 million, under 10b5-1 plans. The sellers included CEO Joe Fortunato (300,800 shares), EVP Thomas Dowd (130,736 shares) and SVP Guru Ramanathan (26,310 shares). In comparison, insiders sold a total of 2.7 million shares in the past year (not including institutional insiders).
GNC also just reported its Q4 last Thursday, beating earnings (35c v/s 29c) and revenues ($510 million v/s $496 million), and guiding FY12 revenues above analyst consensus estimates. The stock is up strongly, and currently trades at a current 21.4 P/E and 3.5 P/B compared to averages of 14.8 and 2.1 for its peers in the retail drug stores group.
Green Mountain Coffee Roasters Inc. (GMCR): GMCR operates in specialty coffee industry in the U.S. and internationally. It distributes approximately 200 whole bean and ground coffee selections, cocoa, teas and coffees. It is probably most famous for its patented single-cup coffee and tea brewing systems for offices and homes sold under the Keurig brand name. On Friday, Chairman of the Board Robert Stiller filed SEC Form 4 indicating that he sold 0.5 million shares for $33.0 million, ending with 13.9 million shares. In comparison, insiders sold a total of 2.35 million shares in the past year.
GMCR reported its Q4 earlier this month, handily beating earnings (60c v/s 38c) and revenue ($1.16 billion v/s $1.06 billion), but cautious in its outlook, just re-affirming FY12 revenue and earnings projections. Its shares are currently up almost 30% since the report, and they trade at 19-20 forward P/E and 5.3 P/B compared to averages of 18.2 and 2.4 for its peers in the wholesale food items group, while earnings are projected to grow extremely strong going forward from $1.64 in 2011 to $3.64 in 2013 at an annual growth rate of 49.0%.
International Paper Co. (IP): IP is a paper and packaging company with worldwide operations, manufacturing containerboards, printing and writing papers, market pulp and coated paperboard. On Friday, two insiders filed SEC Forms 4 indicating that they sold a total of 87,006 shares for $2.9 million. The selling insiders included SVP Thomas Kadien (39,006 shares) and SVP Maximo Pacheco (48,000 shares). In comparison, insiders sold a total of 0.28 million shares in the past year. IP reported a good Q4 at the beginning of the month, on February 2nd, beating earnings (66c v/s 61c) and missing revenues ($6.37 billion v/s $6.52 billion); its shares trade at 9-10 forward P/E and 2.2 P/B compared to averages of 10.6 and 4.0 for its peers in the paper and related products group.
Cummins Inc. (CMI): CMI manufactures diesel and natural gas engines, electric power generation systems and engine-related component products for OEMs worldwide. On Friday, three insiders filed SEC Forms 4 indicating that they sold a total of 26,692 shares for $3.3 million, with the majority of the sales by EVP Jean Blackwell (19,449 shares) and VP Richard Harris (6,259 shares). In comparison, CMI insiders sold 0.13 million shares in the past year. CMI reported a strong Q4 on February 2nd, handily beating analyst revenue and earnings estimates. Its shares currently trade at a forward 10-11 P/E and 4.2 P/B compared to averages of 10.5 and 4.1 for its peers in the internal-combustion engines group.
On top of these, some additional large insider sales on Friday included:
- a $7.7 million sale by Director and 10% owner Dennis (Chip) Wilson, pursuant to a 10b5-1 plan, at Lululemon Athletica (LULU), an operator and franchiser of yoga inspired athletic apparel stores for women, men and female youth in North America and Australia;
- a $5.5 million sale by Founder and Director John Hendricks, pursuant to a 10b5-1 plan, at worldwide media and entertainment company Discovery Communications (DISCA);
- a $3.6 million sale by seven insiders at 3M Co. (MMM), a provider of industrial tapes and adhesives, medical supplies, office products, surveillance and communications products;
- a $3.6 million sale by SVP Herbert Topham at toy-maker Mattel Inc. (MAT);
- a $3.1 million sale by two insiders at Harman International Industries (HAR), a leading manufacturer of high-quality, high-fidelity loudspeakers, CD players, amplifiers, subwoofers and mixing consoles for the automotive, consumer and professional markets;
- a $1.7 million sale by EVP James McGill at Eaton Corporation (ETN), a provider of electrical power and control equipment, hydraulics systems, truck drive-train and aerospace pneumatic systems;
- a $1.3 million sale by EVP Kenneth Spence at Travelers Companies Inc. (TRV), a provider of commercial and personal property and casualty insurance products and services to businesses, government units, associations and individuals primarily in the U.S.;
- a $1.2 million sale by Director John Muse at food and beverage company Dean Foods Co. (DF);
- a $1.2 million sale by Executive Officer Anthony McWorter at Torchmark Corp. (TMK), a provider of individual life and supplemental health insurance, including juvenile and senior life coverage;
- a $1.1 million sale by CEO David Singer at Snyder-Lance Inc. (LNCE), a manufacturer of snack and bakery food products; and
- a $1.0 million sale by Director Thomas Plimpton at Paccar Inc. (PCAR), a designer, manufacturer, and distributor of light-, medium-, and heavy-duty trucks and related aftermarket parts primarily in the United States and Europe;
Furthermore, insiders also made noteworthy buys on Friday in True Religion Apparel (TRLG), a marketer of high-fashion jeans, skirts, jackets and tops via premium department stores, boutiques and specialty stores, in which Director Seth Johnson purchased 1,000 shares for $27,228, increasing his holdings to 11,810 shares.
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% or 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.