We present here two noteworthy buys and six noteworthy sells from Wednesday, Thursday and Friday's SEC Form 4 (insider trading) filings in the consumer and retail sectors, as part of our daily and weekly coverage of insider trades (the basic materials and energy sectors, and the technology sector, were covered in separate articles, hyperlinked above). 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 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, two insiders filed SEC Forms 4 indicating that they sold 9.55 million shares for $20.1 million. Of these, EVP Patrick Donnelly exercised options to acquire 7.70 million shares and sold the resulting and an additional 1.54 million shares (total 9.24 million shares) for $19.45 million, ending with no direct holdings and 12,549 shares in indirect holdings after the sale (not including derivative holdings). Director James Holden exercised options and sold the resulting remaining 0.3 million shares, ending with 0.14 million shares after the sale (not including derivative holdings). These sales are in addition to the 6.94 million share sale that we reported earlier on last Friday, so that overall SIRI insiders have reported selling a total of 16.5 million shares in the past five trading days. In comparison, insiders reported selling only an additional 0.8 million shares in the past year.
SIRI reported an in-line Q4 earlier this month, on February 9th. Its shares, currently trading at the upper end of a long-term $1.50-$2.50 trading range, have been surprisingly strong after the report, consolidating in a tight 10% range of $2.00-$2.20. Technically, the shares look ready to break-out. However, with earnings staying generally in the 1c-2c range, it looks unlikely that shares will rise much beyond the long-term highs in the $2.40s on the strength of current fundamentals.
Nordstrom Inc. (JWN): JWN operates 207 high-end department stores in 28 states offering apparel, shoes, cosmetics and accessories for women, men and children. On Thursday and Friday, five insiders filed SEC Forms 4 indicating they sold 118,758 shares for $6.2 million, with the large majority of the shares sold by Director Enrique Hernandez (37,546 shares) and EVP Loretta Soffe (51,188 shares). In comparison, insiders sold 0.62 million shares in the past year. Also, recently, in mid-December, we reported that President Blake Nordstrom, a great-grandson of the chain founder John W. Nordstrom, sold 106,466 shares for $5.1 million.
JWN reported its Q4 last Thursday, beating earnings ($1.11 v/s $1.10) but guiding FY2013 earnings below consensus ($3.30-$3.45 v/s $3.59). The company subsequently hiked its dividend by 17% to 27c per share, and announced an $800 million share re-purchase program. Its shares have held steady since the report, and currently trade at 13-14 forward P/E and 5.6 P/B compared to averages of 14.1 and 3.3 for its peers in the apparel and shoe retail group.
Comcast Corp. (CMCSA): CMCSA provides cable services and content to 22.8 million subscribers in 39 states, as well as Internet and phone services. On Wednesday, four insiders filed SEC Forms 4 indicating that they exercised options to acquire 1.53 million shares, and sold 0.41 million of those shares for $11.5 million. The largest transaction was by EVP Stephen Burke who exercised options to acquire 1.16 million shares and sold 0.27 million of those shares. And the second largest transaction was by SVP Arthur Block, who exercised options to acquire 0.33 million shares and sold 0.10 million of those shares. In comparison, insiders sold a total of 0.6 million shares and purchased 25,000 shares in the past year.
CMCSA shares have been in a strong rally mode, rising almost 25% or $15 billion in market-cap since the beginning of the year. Its shares currently trade at 13-14 forward P/E and 1.7 P/B compared to averages of 15.5 and 7.7 for its peers in the cable TV group, while earnings are projected to increase from $1.58 in 2011 to $2.18 in 2013 at an annualized growth rate of 17.5%.
TiVo Inc. (TIVO): TIVO provides digital video recorders and subscription-based services used to record TV programs for home entertainment. On Wednesday, three insiders filed SEC Forms 4 indicating that they sold 43,106 shares for $0.51 million. The sellers included SVP Jeffrey Klugman (19,584 shares), SVP Nancy Kato (19,355 shares) and SVP Charles Phillips (4,167 shares). In comparison, insiders sold 0.42 million shares in the past year. TIVO currently generates losses, and it trades at 4.9 P/B compared to the average of 12.0 for its peers in the cable TV group.
On top of these, some additional large insider sales reported in the consumer and retail sectors included:
- A $5.2 million sale by two insiders at CVS Caremark Corp. (CVS), a leading integrated pharmacy services provider in the U.S.
- A $1.3 million sale by EVP and CFO Sabrina Simmons, pursuant to a 10b5-1 plan, at Gap Inc. (GPS), the operator 3,246 Gap, Old Navy and Banana Republic apparel stores worldwide.
Furthermore, insiders also reported noteworthy buys in the consumer and retail sectors in:
- Susser Holdings Corp. (SUSS), an operator of over 1,100 company-owned and contracted convenience/gas stores in TX, NM and OK, with more than 300 of these locations also offering restaurant service, in which EVP Steven DeSutter purchased 5,000 shares for $108,750; and
- Whirlpool Corp. (WHR), a manufacturer of consumer washers and dryers, refrigerators and freezers, dishwashers, and other household appliances, in which Director William Perez purchased 1,000 shares for $69,750.
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.