Analyzing Friday's Noteworthy Insider Buys And Sells

by: GuruFundPicks

We present here five noteworthy buys and nine noteworthy sells from Friday's (March 2nd, 2012) SEC Form 4 (insider trading) filings, as part of our daily and weekly coverage of insider trades (ex- the basic materials, energy and industrial sectors that are covered in a separate article that can be accessed later from our author page). These were selected by a review of over 530 separate transactions in over 300 different companies filed by insiders 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):

LinkedIn Corp. (NYSE:LNKD): LNKD operates an online professional network via its proprietary social networking platform that enables members to create, manage and share their professional identities online, build and engage with their professional network, access shared knowledge and insights, and find business opportunities. On Friday, two insiders filed SEC Forms 4 indicating that they converted Class B common stock into Class A common stock and sold the resulting 153,251 (Class A common) shares for $13.3 million, pursuant to 10b5-1 plans. This is in addition to the sale of 245,747 shares for $21.9 million, pursuant to 10b5-1 plans, by eight insiders that we reported just last week. The sales reported Friday were by CEO Jeff Weiner (74,584 shares) and Director and 10% owner Reid Hoffman (78,667 shares), who respectively ended with 100,555 shares and no shares after the sale (not including derivative securities).

The heavy insider selling come at a time when LNKD shares are consolidating at their highs following a rally after the company reported a bullish Q4 last month, in which they beat analyst revenue and earnings estimates by wide margins. The LNKD story is compelling, and revenues and earnings are currently exploding with strong growth projections in the near term. However, we believe that shares may be a bit ahead of themselves in the short-term, trading at a very high 80-81 forward P/E compared to the 28.2 average for its peers in the Internet services group, while earnings growth is projected at a 75.7% annual rate from 35c in 2011 to $1.08 in 2013. Analysts are bullish on the stock, with eight of the 17 covering the stock rating it a buy/strong buy, eight at hold, and one at underperform. However, the shares are already trading very close to their price targets in the $90 range.

Big Lots Inc. (NYSE:BIG): BIG operates as a broad line closeout retailer, with almost 1,400 stores in the U.S., Puerto Rico and Guam, offering a range of merchandise, including consumables, home improvement, furniture, electronics and seasonal categories. On Friday, two insiders filed SEC Forms 4 indicating that they exercised options and sold the resulting 35,750 shares for $1.6 million, pursuant to 10b5-1 plans, with the sellers being EVP Joe Cooper (17,000 shares) and EVP Charles Haubiel (18,750 shares). In comparison, insiders sold 0.19 million shares in the past year.

BIG just reported its Q4 last Friday, beating analyst earnings ($1.75 v/s $1.73) and revenue estimates ($1.67 billion v/s $1.66 billion), and guided FY earnings in-line. Its shares currently trade at 11-12 forward P/E and 3.7 P/B compared to averages of 15.3 and 3.7 for its peers in the discount retail group.

Responsys Inc. (NASDAQ:MKTG): MKTG provides on-demand software and services allowing marketing companies to create and execute campaigns across interactive channels of email, mobile, social and web. On Friday, Chief Customer Officer Andrew Priest filed SEC Form 4 indicating that he exercised options and sold the resulting 40,000 shares for $0.49 million, pursuant to a 10b5-1 plan, ending with no shares after the sale (not including derivative holdings). MKTG reported its Q4 last Wednesday, beating analyst earnings (6c v/s 3c) and revenue estimates ($37 million v/s $35 million); however, its earnings are down 50% year-over-year (6c v/s 12c) and revenue growth is decelerating. The shares have weakened since the report, down by almost 15%, and currently trade at a current 46 P/E and 3.7 P/B compared to averages of 30.4 and 3.9 for its peers in the internet software group.

On top of these, some additional large insider sales reported on Friday included:

  • A $34.5 million sale by two insiders, with 300,000 shares each sold by Vice Chairman Hilton Schlosberg and Chairman and CEO Rodney Sacks, at Monster Beverage Corp. (NASDAQ:MNST), a marketer and distributor of alternative beverages including energy drinks, fruit juices, smoothies and natural sodas;
  • A $4.0 million sale by two insiders at, pursuant to 10b5-1 plans, at Gap Inc. (NYSE:GPS), the operator 3,246 Gap, Old Navy and Banana Republic apparel stores worldwide, with the majority of the sales (111,250 shares out of 159,417 shares) by CFO Sabrina SImmons;
  • A $2.8 million sale by Chief Technology Officer Steven McCanne at Riverbed Technology Inc. (NASDAQ:RVBD), a provider of products and services that improve applications and accessibility of data over wide area networks or WANs;
  • A $2.1 million sale by Director Michael Brown at Regeneron Pharmaceutical (NASDAQ:REGN), a developer of medicines for the treatment of serious medical conditions, with two products, ARCALYST and EYLEA, on the market, and additional in development to treat inflammatory conditions, allergic and immune conditions, and cancer;
  • A $1.2 million sale by Group VP and General Counsel David Leitch at automobile manufacturing company Ford Motor (NYSE:F); and
  • A $1.2 million sale by EVP Helena Foulkes at CVS Caremark Corp. (NYSE:CVS), a leading integrated pharmacy services provider in the U.S.

Furthermore, insiders also reported noteworthy buys on Friday in:

  • Allstate Corp. (NYSE:ALL), a provider of personal property, casualty, life insurance and retirement and other investment products, mainly in the U.S., in which Director Andrea Redmond purchased 4,000 shares for $126,440, the only insider purchase in the past year;
  • Zions Bancorp (NASDAQ:ZION), a multi-bank holding company that provides various banking and related products and services in the U.S. with almost 500 branches in UT and eight other western states, in which EVP George Feiger purchased 8,000 shares for $154,000, compared to a purchase of 38,000 shares in the past year;
  • Winmark Corp. (NASDAQ:WINA), a franchisor of retail store concepts that buy, sell, trade and consign merchandise, in which Chairman and CEO John Morgan purchased 5,000 shares for $285,000, compared to 30,142 shares purchased by insiders in the past year;
  • Hersha Hospitality Trust (NYSE:HT), a REIT that engages in the ownership and operation of mid-scale limited service hotels in the eastern U.S., in which Director Kiran Patel purchased 25,000 shares for $125,499, compared to 106,000 shares purchased by insiders in the past year; and
  • Marsh & McLennan (NYSE:MMC), a provider of advice and solutions in the areas of risk, strategy, and human capital, in which Director David Yost purchased 15,000 shares for $475,200, compared to only an additional 1,015 shares purchased by insiders in the past year.

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.