Analyzing Noteworthy Insider Buys And Sells In Technology On Wednesday, Thursday

by: GuruFundPicks

We present here two noteworthy buys and nine noteworthy sells from Wednesday and Thursday's SEC Form 4 (insider trading) filings in the technology sector, 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):

Riverbed Technology Inc. (NASDAQ:RVBD): RVBD provides products and services that improve applications and accessibility of data over wide area networks (WANs). Its WAN optimization solutions liberate businesses from common IT constraints by increasing application performance, enabling consolidation and providing enterprise-wide network and application visibility, all while eliminating the need to increase bandwidth, storage or servers. On Thursday, two insiders filed SEC Forms 4 indicating they sold 0.29 million shares for $8.0 million, pursuant to 10b5-1 plans, with the large majority of the shares (0.25 million) sold by Chief Technology Officer Steven McCanne. So far in February, insiders have reported selling a total of 0.62 million shares, including the sale of 0.13 million shares that we reported just earlier this week. In comparison, insiders reported selling 3.2 million shares in the past year.

RVBD shares are trading at depressed levels, near their lows, down recently after the company reported a disappointing Q4 a month ago, on January 26th. The company beat earnings by 1 cent (25 cents v/s 24 cents) and reported revenues in-line for Q4, but its guidance for the upcoming March quarter was weak as it projected both revenues ($183-$187 million v/s $197 million) and earnings (19c-21c v/s 25c) below analyst estimates. While the company blamed the projected shortfall on product transition issues, the shares earlier gave back a quarter of the valuation on fears over competitive issues. Its shares have since recovered most of the drop and currently trade at a current 30.9 P/E and 6.2 P/B compared to averages of 24.0 and 2.2 for its peers in the computer networking group.

Akamai Technologies Inc. (NASDAQ:AKAM): Akamai is a global provider of services that help enterprises and e-businesses improve the delivery of their content and applications over the Internet. On Thursday, three insiders filed SEC Forms 4 indicating that they exercised options and sold the resulting 47,594 shares for $1.8 million, pursuant to 10b5-1 plans, with the largest amount (21,250 shares) sold by CEO Paul Sagan, 14,344 shares sold by EVP Robert Hughes, and the remaining 12,000 shares sold by Director Martin Coyne. This is in addition to the 41,058 share sale reported earlier this month, so that in total insiders reported selling a total of 0.11 million shares in February. In comparison, insiders sold a total of under 0.14 million shares in the past year.

AKAM released a surprisingly strong Q4 just over two weeks ago, with earnings (45c v/s 40c) and revenue ($324 million v/s $311 million) trouncing estimates. The stock is up over 10% since the report, and trades at a reasonable 20-21 forward P/E and 3.2 P/B compared to averages of 27.2 and 3.3 for its peers in the internet services group.

Atmel Corp. (NASDAQ:ATML): ATML manufactures a wide range of highly integrated semiconductor integrated circuit products, including microcontrollers, application specific ICs, non-volatile memory, and RF components. On Wednesday, SVP Robert Valiton filed SEC Form 4 indicating that he exercised options and sold the resulting 77,436 shares for $0.8 million, ending with 0.54 million shares after the sale (not including derivative securities). This is on top of the 52,153 shares sale reported by COO Walter Lifsey just under a week ago, and the 100,000 share sale that we reported a month ago, so that overall insiders have reported selling a total of 0.23 million shares in the past month. In comparison, insiders reported selling 1.2 million shares in the past year.

ATML reported in-line earnings in its Q4 released earlier this month, on February 8th, but guided revenues lower for the March 2012 quarter. Its shares have been generally flat since the report, and are currently trading at 15-16 forward P/E and 4.3 P/B compared to averages of 20.3 and 1.9 for its peers in the electronic components semiconductor group.

On top of these, some additional large insider sales reported in the technology sector included:

  • A $6.0 million sale by five insiders at Qualcomm Inc. (NASDAQ:QCOM), a designer of CDMA-based, RF and power management ICs for system software used in wireless handsets, modem cards and networks;
  • A $3.8 million sale by five insiders at real estate information marketplace Zillow Inc. (NASDAQ:Z), with the large majority of the sales pursuant to 10b5-1 plans;
  • a $3.8 million sale by Director William Miller at 3D graphics processor designer and developer NVIDIA Corp. (NASDAQ:NVDA);
  • A $1.9 million sale by Director Dara Khosrowshahi at TripAdvisor Inc. (NASDAQ:TRIP), an online travel research company, aggregating reviews and opinions of members about destinations and accommodations such as hotels, resorts, restaurants, vacation packages and travel guides;
  • A $1.4 million sale by EVP Paul Dacier at data storage vendor EMC Corp. (EMC);
  • A $1.0 million sale by two insiders at Nuance Communications (NASDAQ:NUAN), a developer of embedded speech and digital imaging software for customer service intensive industries;

Furthermore, insiders also reported noteworthy buys in the technology sector in:

  • PDF Solutions Inc. (NASDAQ:PDFS), a provider of infrastructure technologies and services for the design and manufacture of integrated circuits in Asia, U.S. and Europe, in which Director Lucio Lanza purchased 8,000 shares for $51,928;
  • Xata Corp. (XATA), a provider of fleet management solutions for private fleets and for-hire fleet carriers within the commercial trucking industries in the U.S. and Canada, in which Director Roger Kleppe purchased 10,000 shares for $12,400.

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 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.