We present here two noteworthy buys and eight noteworthy sells from Monday's SEC Form 4 (insider trading) filings (ex- the healthcare & tech sectors and the basic materials & energy sectors that were covered separately in prior articles hyperlinked above), as part of our daily and weekly coverage of insider trades. These were selected by a review of over 375 separate transactions in over 230 different companies filed by insiders on Monday. 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):
Green Mountain Coffee Roasters Inc. (GMCR): GMCR operates in the 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 Monday, Chairman of the Board Robert Stiller filed SEC Form 4 indicating that he sold 0.5 million shares for $33.3 million, ending with 13.4 million shares. This is in addition to the 0.5 million share sale by Mr. Stiller that we reported exactly a week ago, so that insiders have reported selling a total of 1.05 million shares so far in February. In comparison, insiders sold a total of 2.86 million shares in the past year.
GMCR shares are currently over 40% off of the all-time highs in the $115 range that it hit in September of last year, after a meteoric more than 20-fold rise in under three years. While earnings growth is projected to continue unabated with a projected 50.0% annual earnings growth rate from $1.64 in 2011 to $3.69 in 2013, and the company in its latest Q4 handily beat earnings (60c v/s 38c) and revenue ($1.16 billion v/s $1.06 billion) estimates, nevertheless the stock continues to languish near recent lows.
The stock currently trades at 17-18 forward P/E and 5.1 P/B compared to averages of 15.6 and 2.5 for its peers in the wholesale food items group; however its projected five-year EPS growth at 25% is well above the 18.3% average for its peers, and it is quite likely that it may perform even better than that. Hence, based strictly on projected earnings growth, the stock trades at a discount. Assuming even a reasonable P/E of one times growth or 25 would give it a valuation over 40% above current levels. While there are legitimate concerns that growth could be stalled as the company gets larger, we believe that the projected 25% growth rate already reflects that. In fact, it is even conceivable that growth may continue unabated at much higher rates, especially if the coffee market is expanded to gain a larger share in the tea-drinking regions of the world, including India, China, and other parts of Asia.
Manitowoc Co. (MTW): MTW is a manufacturer of cranes and related lifting equipment for the energy, petrochemical, construction and mining markets, and it also serves the foodservice industry by providing ice machines, ice/beverage dispensers and refrigeration products. On Monday, six insiders filed SEC Forms 4 indicating that they sold a total of 44,618 shares for $0.72 million, with the majority of the shares sold by CEO Glen Tellock (15,900 shares) and SVP Thomas Musial (10,200 shares). This is in addition to the sale of 44,271 shares that we reported earlier this month, so that in total insiders have reported selling 0.11 million shares so far in February. In comparison, the last time prior to this month insiders reported selling shares was more than a year ago in early February of last year.
MTW reported a good Q4 at the end of last month, beating both analyst revenue and earnings estimates; the stock currently trades at 10-11 forward P/E and 4.5 P/B compared with averages of 12.3 and 2.0 for the construction and mining machinery group.
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 Monday, three insiders filed SEC Forms 4 indicating that they exercised options and sold the resulting 8.45 million shares for $17.8 million, with the large majority of the sales by President James Meyer (7.07 million shares) and EVP Dara Altman (1.09 million shares). This is in addition to the sale of 9.55 million shares that we reported just last Friday, so that in total insiders have reported selling 24.9 million shares in the last two weeks. In comparison, insiders reported selling 25.7 million shares in the past year.
SIRI reported in-line revenues and earnings in its latest Q4 report. 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.
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 Monday, four insiders filed SEC Forms 4 indicating that they sold a total of 75,647 shares for $2.5 million. The sellers included SVP Mark Sutton (15,741 shares), SVP Timothy Nicholls (21,835 shares), SVP Tommy Joseph (18,018 shares) and SVP Paul Karre (20,053 shares). This is in addition to the sale of 48,237 shares by two insiders that we reported just this weekend, so that in total IP insiders have reported selling 0.21 million shares in the last two weeks. In comparison, IP insiders sold 0.41 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 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.
On top of these, some additional large insider sales reported on Monday included:
- a $2.2 million sale by two insiders at The TJX Companies Inc. (TJX), a leading off-price apparel and home fashions retailer in the U.S. and internationally;
- a $3.4 million sale by SVP Kimberly Vella, pursuant to a 10b5-1 plan, at Tractor Supply Co. (TSCO), a specialty retailer that operates retail farm and ranch stores in the U.S.;
- a $1.4 million sale by EVP Gail MacKinnon at Time Warner Cable Inc. (TWC), the second-largest cable operator in the U.S., and also a provider of innovative video, high-speed data and voice services; and
- a $2.1 million sale by two insiders at global diversified media holding company Time Warner Inc. (TWX).
Furthermore, insiders also reported noteworthy buys on Monday in:
- Nielsen Holdings NV (NLSN), a provider of media and marketing information, analytics and industry expertise with a focus on what consumers watch and buy, in which Director Robert Pozen purchased 152,755 shares for $4.3 million; and
- Texas Roadhouse Inc. (TXRH), an operator of a full-service, casual dining restaurant chain in the U.S., in which Director Gregory Moore purchase 470 shares for $7,966.
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 ten percent 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 nonpublic 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 maybe 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.