We present here two noteworthy buys and 12 noteworthy sells in the healthcare and technology sectors from Monday's (March 5th, 2012) SEC Form 4 (insider trading) filings, as part of our daily and weekly coverage of insider trades. These were selected by a review of over 480 separate transactions in over 280 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):
Fusion-IO Inc. (FIO): FIO is engaged in the development, marketing and sale of storage memory platforms for data centralization in the U.S. Its platforms enhance the processing capabilities within a datacenter by relocating process-critical or active data from centralized storage to the server where it is being processed. On Monday, seven insiders filed SEC Forms 4 indicating that they exercised options to acquire 282,594 shares and sold those and an additional 52,500 shares for $10.2 million, pursuant to 10b5-1 plans. The largest majority of the shares were sold by Chief Legal Officer Shawn Lindquist (72,011 shares) and COO Lance Smith (150,000 shares). Insider selling at FIO has been particularly heavy in the last few weeks, with an additional 0.8 million shares sold in February.
FIO shares trade at a very premium current 76 P/E, on a TTM basis, compared to the 17.3 average for its peers in the computer storage devices group. However, the Street is extremely bullish on the company, including recent positive statements from Morgan Stanley and CSFB just in the last few days, both reiterating their overweight/outperform rating on the stock. While current fundamentals do not support the high valuation, the bullishness is based on the excellent long-term prospects for the firm's technology in helping enterprises manage the ever increasing huge amounts of data that are being constantly generated and that need to be processed to help them monetize their business models. The company counts Apple Inc. (AAPL) and Facebook among its largest customers. Furthermore, shares have also been buoyed by rumors that the company could be acquired by Intel Corp. (INTC) at valuations of well over $40, significantly above current prices in the $30 range.
Pandora Media Inc. (P): Pandora is a premier provider of Internet radio in the U.S., offering listeners streaming music based on analysis of user listening behavior. Its services are offered on traditional computers and on smart phones such as Android phones, Blackberries and the iPhone. On Monday, five insiders filed SEC Forms 4 indicating that they exercised options to acquire 103,096 shares and sold those and an additional 94,000 shares for $2.6 million, all pursuant to 10b5-1 plans, with the largest seller being Chief Strategy Officer and Director Timothy Westergren (85,000 shares). In comparison, insiders sold 0.6 million shares in the past six months. Pandora is set to report its Q4 (January quarter) after the market close today; currently, the company is break-even for the last four quarters, and is expected to post a loss of 2c for Q4.
Flextronics International Ltd. (FLEX): FLEX is a Singaporean contract manufacturer of flexible circuits and printed circuit boards for computer and telecommunications markets. On Monday, two insiders filed SEC Forms 4 indicating that they sold 179,167 shares for $1.3 million, pursuant to 10b5-1 plans, with 10,000 of those shares acquired by the exercise of options. The large majority of the shares (166,667) were sold by CEO Michael McNamara. In comparison, insiders sold 0.7 million shares in the past year. FLEX shares currently trade at a current 8.3 P/E and 2.2 P/B compared to averages of 12.0 and 1.7 for its peers in the electronics manufacturing services group.
On top of these, some additional large insider sales reported on Monday in the healthcare and technology sectors included:
- A $66.5 million sale by Google Inc. (GOOG), its entire stake, in broadband wireless network services provider Clearwire Corp. (CLWR);
- A $21.0 million sale by five insiders at Qualcomm Inc. (QCOM), a designer of CDMA-based, RF and power management ICs for system software used in wireless handsets, modem cards and networks, with 236,915 of the 336,915 shares sold pursuant to 10b5-1 plans;
- An $8.8 million sale by Chairman and CEO Daniel Starks, pursuant to a 10b5-1 plan, at St. Jude Medical (STJ), that develops cardiovascular medical devices for cardiac rhythm management, atrial fibrillation, cardiac surgery, cardiology and neuromodulation;
- An $8.3 million sale by President Mark Hurd, pursuant to a 10b5-1 plan, at Oracle Corp. (ORCL), a developer of database and middleware software and business application software and hardware systems for enterprises;
- A $7.4 million sale by Chief Technical Officer Henry Samueli, pursuant to a 10b5-1 plan, at Broadcom Corp. (BRCM), a provider of a portfolio of system-on-a-chip and software solutions for wired and wireless communications to manufacturers of computing and networking equipment, digital entertainment and broadband access products, and mobile devices;
- A $4.7 million sale by Chairman and CEO William Nuti, pursuant to a 10b5-1 plan, at NCR Corp. (NCR), a world leader in providing products for the self-service revolution, including ATMs, cash dispensers, self-service kiosks, and point-of-sale and self-check-in/out systems for various industries;
- A $2.7 million sale by CFO Charles Rowland at Viropharma Inc. (VPHM): VPHM develops products for the treatment of diseases impacting patients with few if any treatment options, including drugs for hereditary angioedema, clostridium difficle infection, and seizures in children and adolescents;
- A $2.5 million sale by EVP Vyomesh Joshi, pursuant to a 10b5-1 plan, at Hewlett Packard Co. (HPQ), a Silicon Valley marquee company, that is a leading provider of IT and outsourcing services, PCs and peripherals, printers and scanners, and servers and storage devices;
- A $2.2 million sale by two insiders at Molina Healthcare Inc. (MOH), a provider of managed healthcare services to 1.6 million members via government-sponsored programs for low-income families;
Furthermore, insiders also reported noteworthy buys on Monday in the healthcare and technology sectors in:
- Specialty pharmaceutical company Valeant Pharmaceuticals International Inc. (VRX), in which CFO Howard Schiller purchased 18,600 shares for $1.0 million; and
- Vision Sciences (VSCI), a developer of endoscopy products that have infection control advantages over conventional flexible endoscopes, in which Director and 10% owner Lewis Pell purchased 12,000 shares for $20,496.
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.