Analyzing Wednesday's Noteworthy Insider Buys And Sells

by: GuruFundPicks

We present here three noteworthy buys and six noteworthy sells (ex-healthcare and technology sectors that were covered in a separate article, hyperlinked to above) from Wednesday's (March 7th, 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 400 separate transactions in over 220 different companies filed by insiders on Wednesday. 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):

Corning Inc. (NYSE:GLW): GLW manufactures glass substrates for LCDs, optical fiber and cables for communications and ceramic pollution control products. Its LCDs are used in high-performance displays for TVs and smart phones, including in the venerable iPad. On Wednesday, Director Gordon Gund filed SEC Form 4 indicating that he purchased 150,000 shares for $1.9 million, increasing his holdings in the company to 1.69 million shares after the purchase. In comparison, insiders purchased 255,000 shares in the past year.

GLW shares have been weak ever since its Q4 report in late January, in which it beat revenue and reported earnings in-line with estimates, but forecast slowing growth ahead due to falling prices. Its shares currently trade at a steep discount of 9 forward P/E and 1.0 P/B compared to averages of 14.7 and 1.7 for its peers in the communications group, while earnings are projected to decline from $1.76 in 2011 to $1.50 in 2013.

Chicos FAS Inc. (NYSE:CHS): CHS operates as a specialty retailer of casual-to-dressy clothing, intimates, complimentary accessories and other non-clothing gift items, with over retail stores. On Wednesday, Director Verna Gibson filed SEC Form 4 indicating that she exercised options and sold the resulting 127,600 shares for $1.9 million, ending with 0.29 million shares in direct and an additional 0.51 million shares in in-direct holdings (not including derivative holdings). In comparison, insiders sold 0.42 million shares in the past year.

CHS two weeks ago reported a stellar Q4 report, beating analyst earnings (15c v/s 11c) and revenue estimates ($569 million v/s $548 million), and guiding FY 2013 revenues higher. A number of brokers, including FBR Capital and Janney Montgomery, subsequently raised their targets on the stock, and its shares have risen almost 20% since the Q4 report. They currently trade at a current 18.2 P/E and 2.4 P/B compared to averages of 16.7 and 2.1 for its peers in the apparel & shoe retail group.

Gulfport Energy Corp. (NASDAQ:GPOR): GPOR is an independent oil and gas company, engaged mostly in the exploration, development and production of oil and natural gas properties in the Louisiana Gulf Coast area, the Permian Basin and the Bakken Shale, and also internationally in the Canadian oil sands, northern Thailand and in Belize. On Wednesday, Charles Davidson, Chairman and CIO of Wexford Capital, a basic material and energy-focused hedge fund with $855 million in 13-F assets at the end of Q4, and an insider by virtue of being a 10% owner, filed SEC Form 4 indicating that he sold 0.49 million shares for $15.8 million, ending with 6.43 million shares after the sale. GPOR shares currently trade at 10-11 forward P/E and 3.0 P/B compared to averages of 17.8 and 5.3 for its peers in the U.S. oil and gas exploration and production group.

Xylem Inc. (NYSE:XYL): XYL provides water technology solutions, water and water treatment solutions, and industrial pump and related technologies. On Wednesday, Director Steven Loranger filed SEC Form 4 indicating that he exercised options and sold the resulting 99,120 shares for $2.6 million, ending with 0.23 million shares in direct and an additional 50,856 shares in indirect holdings after the sale.

XYL was launched in November of last year as a spinoff of the water-related businesses of ITT Corporation (NYSE:ITT), and has over $3.2 billion in revenue and 12,000 employees worldwide. It trades at a current 13.8 P/E and 2.6 P/B, while earnings are projected to grow from $1.88 in 2012 to $2.13 in 2013.

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

  • A $9.5 million sale by four insiders at The TJX Companies Inc. (NYSE:TJX), a leading off-price apparel and home fashions retailer in the U.S. and internationally;
  • A $1.7 million sale by VC and COO of Electrical Sector, Thomas Gross, at Eaton Corporation (NYSE:ETN), a provider of electrical power and control equipment, hydraulics systems, truck drive-train and aerospace pneumatic systems;
  • A $1.5 million sale by Director Eitan Raff, pursuant to a 10b5-1 plan, at Verifone Systems Inc. (NYSE:PAY), a provider of electronic payment solutions for a range of industries including financial, retail, petroleum, government and healthcare;

Furthermore, insiders also reported noteworthy buys on Wednesday in:

  • Starwood Property Trust (NYSE:STWD), a REIT that focuses primarily on originating, investing in, financing, and managing commercial mortgage loans and other commercial real estate debt investments, commercial mortgage-backed securities, and other commercial real estate-related debt investments, in which Director Richard Bronson purchased 15,000 shares for $0.31 million; and
  • Spectranetics Corp. (NASDAQ:SPNC), a developer of single-use medical devices used with a proprietary laser system in minimally invasive cardiovascular surgeries, in which CEO William Drake purchased 13,000 shares for $0.10 million.

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.

Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.

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.

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