Analyzing Tuesday's Noteworthy Insider Buys And Sells

by: GuruFundPicks

We present here two noteworthy buys and ten noteworthy sells (ex-consumer, retail and financial sectors that were discussed in a separate article, hyperlinked above) from Tuesday's (March 13th, 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 450 separate SEC Form 4 transactions filed by insiders on Tuesday. 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):

Concho Resources Inc. (NYSE:CXO): CXO is an independent oil & natural gas company, engaged in the acquisition, development and exploration of oil and natural gas in southeast NM and west TX. On Tuesday, CFO Darin Holderness filed SEC Form 4 indicating that he exercised options and sold the resulting 14,937 shares for $14.9 million, ending with 67,426 shares (not including derivative holdings). In comparison, insiders sold 0.17 million shares in the past year. CXO reported a mixed Q4 at the end of last month, missing analyst earnings estimates ($1.15 vs $1.19) and beating revenue estimates ($478 million vs $452 million). Its shares currently trade at 14-15 forward P/E and 3.4 P/B compared to averages of 17.4 and 5.3 for its peers in the U.S. oil & gas exploration & production group.

Lowe's Companies Inc. (NYSE:LOW): LOW operates as a home improvement retailer operating 1,749 stores in the U.S., Canada and Mexico. On Tuesday, three insiders filed SEC Forms 4 indicating that they exercised options and sold the resulting 252,079 shares for $7.4 million, with the large majority (207,000 shares) sold by CFO Robert Hull. In comparison, insiders sold 0.96 million shares in the past year.

LOW reported a strong Q4 at the end of last month, beating analyst earnings (29c v/s 23c) and revenue estimates, and guiding FY EPS in-line. Its shares, up more than 50% in the last six months, are in strong rally mode, looking to attack its all-time highs in the $35 range set in early 2007. The strong rally in both LOW and its closest peer and prime competitor Home Depot Inc. (NYSE:HD) are backed by strong revenue and earnings growth, a stabilization and possible recovery in the housing market going forward, and a slow but gradual improvement in the economy. LOW shares currently trade at a reasonable 14 forward P/E and 2.3 P/B compared to averages of 17.2 and 2.6 for its peers in the building products retail/ wholesale group, while earnings are projected to rise at a 14.2% compound growth rate from $1.67 in 2012 to $2.18 in 2013.

Kodiak Oil & Gas (NYSE:KOG): Denver-based KOG is an independent energy exploration and development company focused on exploring, developing and producing oil and natural gas in the Williston and Greater Green River Basins in the U.S. Rocky Mountains. On Tuesday, EVP Russ Cunningham filed SEC Form 4 indicating that he exercised options and sold the resulting 100,000 shares for $0.99 million, ending with 55,000 shares after the sale (not including derivative holdings). In comparison, KOG insiders sold 0.29 million shares in the past year.

KOG shares have rallied strongly, almost tripling from the $3.50s lows in early October. However, its shares still trade at a discount 7-8 forward P/E and 3.2 P/B compared to averages of 20.8 and 5.2 for its peers in the U.S. oil & gas exploration & production group, while earnings are projected to explode from 11c in 2011 to a projected 82c in 2012 and $1.30 in 2013.

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

  • an $8.4 million sale by four insiders, pursuant to 10b5-1 plans, at Qualcomm Inc. (NASDAQ: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;
  • a $2.8 million sale by two insiders, pursuant to 10b5-1 plans, at Fusion-IO Inc. (NYSE:FIO), engaged in the development, marketing and sale of storage memory platforms for data centralization in the U.S.;
  • a $2.0 million sale by Director Ralph Schmidt, pursuant to a 10b5-1 plan, at Western Refining Inc. (NYSE:WNR), a refiner and marketer of crude oil and refined products in West TX, AZ, NM, UT, CO and the mid-Atlantic region;
  • a $1.6 million sale by SVP Keith Peden, pursuant to a 10b5-1 plan, at Raytheon Company (NYSE:RTN), a manufacturer of guidance systems and lasers, missile systems, integrated defense platforms, and command/ control systems;
  • a $1.2 million sale by CEO Mark Kowlzan at Packaging Corp. of America (NYSE:PKG), one of the largest manufacturers of containerboards and corrugated products in the U.S.;
  • a $1.1 million sale by CEO Don Bailey, pursuant to a 10b5-1 plan, at Questcor Pharmaceuticals (QCOR): QCOR is an integrated specialty pharmaceutical company focused on the development, acquisition and marketing of innovative, acute care and critical care hospital and specialty pharmaceutical products; and
  • a $1.0 million sale by COO David Lamp at Hollyfrontier Corp. (NYSE:HFC), an independent petroleum refiner and marketer in the U.S., that is engaged in the production of high value light petroleum products such as gasoline, diesel fuel, jet fuel, and other specialty products.

Furthermore, insiders also reported noteworthy buys on Tuesday in:

  • Metabolix Inc. (NASDAQ:MBLX), a well-known provider of the Mirel brand of PHA natural plastics that are environmentally sustainable and totally biodegradable, and a green alternative to petroleum-based plastics, and engaged in the development of a proprietary platform technology for co-producing plastics, chemicals and energy from crops such as switchgrass, oilseeds and sugarcane, in which Director Matthew Strobeck purchased 100,000 shares for $0.31 million; and
  • Planar Systems Inc. (NASDAQ:PLNR), a leading provider of value-added display hardware and software for a variety of specialty display markets worldwide including hospitals, shopping centers, banks, and other businesses, in which Director David Sandberg purchased 27,200 shares for $57,594.

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 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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