We present here noteworthy buys and ten noteworthy sells from Wednesday, Thursday and Friday's SEC Form 4 (insider trading) filings in the basic materials and energy sectors, as part of our daily and weekly coverage of insider trades. These were selected by a review of over 790 separate transactions in over 450 different companies filed by insiders on Wednesday and Thursday, and an additional 200 or so filings so far today. 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):
Kronos Worldwide Inc. (KRO): KRO manufactures titanium dioxide pigments that provide whiteness, brightness, opacity and durability to products such as coatings, plastics and papers, as well as specialty products such as inks, food and cosmetics. On Wednesday, Chairman of the Board Harold Simmons filed SEC Form 4 indicating that he purchased 100,000 shares for $2.2 million. Insiders, including Chairman Simmons, Director Glenn Simmons and CEO Steven Watson, have been aggressively buying KRO shares, purchasing a total of 0.74 million shares in just over three months, since mid-November. In comparison, insiders purchased only an additional 0.6 million shares in the past two years.
KRO has a lot going for it. Besides heavy insider buying in the past three months, the stock is trading about 35% off of recent highs it hit last summer, revenues and earnings are up strongly year-over-year, and the stock trades at a current 9.5 P/E and 2.9 P/B compared to averages of 13.6 and 1.8 for its peers in the diversified chemicals group. Furthermore, analysts as a group are moderately bullish on the stock, with a mean price target of over $27, compared to the current $22 price; and of the four analysts that cover the stock, two rate it at buy/strong buy and the other two at hold.
Dow Chemical Co. (DOW): DOW is a science and technology company that manufactures plastic, chemical and agricultural products for the global food, transportation, health and medicine, personal and home care, and building construction markets. On Wednesday, four insiders filed SEC Forms 4 indicating that they sold a total of 195,682 shares for $6.8 million. The large majority of the shares were sold by EVP and CIO David Kepler, who exercised options and sold the resulting 190,278 shares, pursuant to a 10b5-1 plan. This is in addition to the sale of 31,800 shares by two insiders, including Mr. Kepler, that we reported just last week, so that insiders have reported selling a total of 0.23 million shares in the past two weeks. In comparison, insiders reported selling only an additional less than 1,000 shares in the past year. DOW reported its Q4 earlier this month, on February 2nd, missing earnings (25c v/s 30c) and missing revenues ($14.1 billion v/s $14.25 billion). The stock since has flat-lined, and currently trades at 10 forward P/E and 2.2 P/B compared to averages of 10.8 and 2.6 for the diversified chemicals group.
National Oilwell Varco (NOV): NOV is engaged in the manufacture and sale of equipment, components and products used in oil and gas drilling and production, it provides oilfield services and supplies, and it distributes products and provides supply chain integration services to the upstream oil and gas industry worldwide. On Thursday and Friday, three insiders filed SEC Forms 4 indicating that they exercised options and sold the resulting 68,257 shares for $4.6 million, with the majority of the shares (41,962) sold by VP, Controller and Chief Accounting Officer Robert Blanchard on Thursday, and by Director Roger Jarvis (15,000 shares) on Friday. This is in addition to the sale of 0.15 million shares for $12.3 million that we reported on just earlier this week, so that overall NOV insiders have reported selling a total of 0.42 million shares so far in February. In comparison, insiders reported selling only an additional 0.15 million shares in the past year.
NOV reported its Q4 earlier this month, on February 2nd, beating analyst revenue and earnings estimates. Its shares currently trade at 12-13 forward P/E and 1.8 P/B compared with averages of 12.9 and 2.3 for its peers in the oil field machinery and equipment group.
Apache Corp. (APA): APA is an independent energy company engaged globally in the exploration, development and production of natural gas, crude oil and natural gas liquids or NGLs. On Wednesday, two insiders filed SEC Forms 4 indicating that they sold a total of 10,810 shares for $1.2 million, with 5,150 of those shares acquired by the exercise of options. In comparison, APA insiders sold a total of 0.14 million shares in the past year. APA shares trade at 8-9 forward P/E and 1.5 P/B compared to averages of 19.3 and 5.2 for its peers in the U.S. oil and gas exploration and production group.
Occidental Petroleum (OXY): OXY is engaged in the exploration and production of crude oil and gas worldwide. It operates in three segments: Oil and Gas; Chemical; and Midstream, Marketing, and Other. On Wednesday, Director John Feick filed SEC Form 4 indicating that he sold 5,000 share for $0.5 million, ending with 40,000 shares after the sale. In comparison, insiders at OXY sold 11,000 shares in the past six months, and 35,064 shares in the past year. OXY reported its Q4 a month ago, in which it handily beat both analyst revenue and earnings estimates. Its shares currently trade at 11 forward P/E and 2.3 P/B compared to averages of 8.6 and 1.5 for its peers in the U.S. integrated oil and gas group.
On top of these, some additional large insider sales reported in the basic materials and energy sector included:
- An $11.3 million sale by EVP Ricardo Malfitano at Praxair Inc. (PX), one of the largest industrial gas companies, manufacturing atmospheric gases such as oxygen, nitrogen, argon and rare gases, and also process gases including CO2, helium, hydrogen, electronic gases, specialty gases and acetylene;
- A $4.0 million sale by three insiders at PPG Industries (PPG), a manufacturer of coatings, glass and chemicals for the packaging, aerospace, architectural, automotive and other markets;
- A $2.6 million sale by CFO Randall Fowler at Enterprise Products Partners (EPD), an MLP engaged in transportation, gathering, processing and storage of natural gas, natural gas liquids and crude oil;
- A $2.1 million sale by two insiders at Exxon Mobil Corp. (XOM), a world leader in energy exploration and production;
- A $1.9 million sale by VP Satish Pai at Schlumberger Ltd. (SLB), a provider of technology services, project management and information solutions to the petroleum industry worldwide; and
- A $1.2 million sale by VP and Controller James Shonsey at independent oil and gas exploration and production company Cimarex Energy Co. (XEC).
Furthermore, insiders also reported noteworthy buys in the basic materials and energy sectors in:
- Penford Corp. (PENX), a provider of specialty natural-based ingredient systems for food and industrial ingredient applications, in which Director James Warjone purchased 5,200 shares for $29,634.
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.