Analyzing Thursday's Noteworthy Insider Trades In Healthcare And Tech Sectors

by: GuruFundPicks

We present here two noteworthy buys and seven noteworthy sells from Thursday's (March 15th, 2012) SEC Form 4 (insider trading) filings in the healthcare and tech sectors, as part of our daily and weekly coverage of insider trades. These were selected by a review of over 415 separate SEC Form 4 transactions filed by insiders on Thursday. 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):

Dell Inc. (NASDAQ:DELL): Dell provides desktop PCs, mobility products, servers and networking products to individuals, businesses and governments. On Thursday, President Stephen Schuckenbrock filed SEC Form 4 indicating that he exercised options to acquire 0.63 million shares and sold those and an additional 0.32 million shares for $16.4 million, ending with 0.33 million shares after the sale (not including derivative holdings). Insider selling has recently picked up at DELL with 2.49 million shares being reported sold by six insiders in the last three weeks. In comparison, insiders reported selling only an additional 0.89 million shares in the prior 49 weeks of the past year.

Dell shares have responded well this year, up about 15% YTD, trading near the top of a three-and-a-half year trading range, as the company executes its strategy of expanding outside its core PC business into enterprise IT systems. The strategy is aimed at taking head-on Dell rivals International Business Machines (NYSE:IBM) and Hewlett-Packard Co.'s (NYSE:HPQ) leadership positions in the higher-margin IT hardware, software and services businesses. However, the stock may be being held back due to recent lackluster financial results, as in its Q4 released over three weeks ago, Dell missed on earnings (51 cents vs. 52 cents) and guided FY13 revenue below and EPS above consensus. A number of brokers downgraded the stock on the earnings miss and weak guidance, and its shares are currently slightly lower after the report, trading at 8 forward P/E and 3.5 P/B compared with averages of 8.4 and 4.2 for its peers in the micro-computer group. Earnings are projected to rise modestly from $2.13 in 2012, to $2.18 in 2014.

Akamai Technologies Inc. (NASDAQ:AKAM): Akamai is a global provider of services that help enterprises and e-businesses improve the delivery of their content and applications over the Internet. On Thursday, two insiders filed SEC Forms 4 indicating that they exercised options and sold the resulting 49,000 shares for $1.8 million, pursuant to 10b5-1 plans, with the large majority (37,500 shares) sold by CEO Paul Sagan. Insiders have been aggressively selling AKAM shares recently, and so far this month have reported selling 0.15 million shares. In comparison, insiders sold 0.28 million shares in the past year.

AKAM released a surprisingly strong Q4 in early February, with earnings (45 cents vs. 40 cents) and revenue ($324 million v/s $311 million) trouncing estimates. The stock is up since the report, and trades at a reasonable 20 forward P/E and 3.2 P/B compared with averages of 27.2 and 3.3 for its peers in the internet services group.

Complete Genomics Inc. (NASDAQ:GNOM): GNOM is a life sciences company that is engaged in the development and commercialization of an innovative DNA sequencing platform that can provide customers with data that is ready to be used for genome-based research. On Thursday, Charles Waite, Managing Director of Kirkland, WA-based venture capital firm OVP Venture Partners, an insider by virtue of being a Director and 10% owner of GNOM, filed SEC Form 4 indicated that he sold 275,000 shares for $0.9 million, ending with 2.5 million shares after the sale.

GNOM shares have been among the weakest in the healthcare sector, down 70% in the past year. The shares recently rallied 60% to their intra-day days after the company announced on February 14th that it was selected by Mayo Clinic's Center for Individualized Medicine to provide outsourced whole human genome sequencing, but has since given back all of those gains, and is back to trading near its all-time lows.

Mylan Inc. (NASDAQ:MYL): MYL is one of the world's leading developers of generic and branded drugs, providing products that cover a vast array of therapeutic categories to customers in over 150 countries and territories. Also, through its India-based subsidiary, it is also one of the world's largest manufacturers of active pharmaceutical ingredients. On Thursday, two insiders filed SEC Forms 4 indicating that they exercised options and sold the resulting 166,875 shares for $3.8 million, with the majority of the sales by Executive Chairman Robert Coury (150,000 shares). In comparison, insiders sold a total of 0.87 million shares in the past year.

MYL reported its Q4 last month, in which it beat earnings (53c v/s 50c) and missed revenue estimates ($1.53 billion v/s $1.56 billion). Its shares are within striking range of its recent highs, and they trade at 8-9 forward P/E and 2.6 P/B compared to the averages of 13.2 and 2.9 for its peers in the generics drug group, while earnings are projected to rise at a 14.0% annual rate from $2.04 in 2011 to $2.65 in 2013.

On top of these, some additional large insider sales reported on Thursday in the healthcare and tech sectors included:

  • an $8.4 million sale by EVP Daniel Harrington, pursuant to a 10b5-1 plan, at Teradata Corp. (NYSE:TDC), a company focused on raising intelligence through data warehousing and enterprise analytics;
  • a $7.0 million sale by Co-President of App. Platform Tod Nielsen, pursuant to a 10b5-1 plan, at Vmware Inc. Cl A (NYSE:VMW), a provider of virtualization software enabling organizations to run multiple operating systems on a single computer; and
  • a $1.3 million sale by CEO David Aldrich at Skyworks Solutions Inc. (NASDAQ:SWKS), the industry's leading wireless semiconductor company focused on radio frequency and semiconductor solutions for mobile communications applications;

Furthermore, insiders also reported noteworthy buys on Thursday in the healthcare and tech sectors in:

  • AVI Biopharma Inc. (AVII), that is focused on the discovery and development of novel RNA-based therapeutics for rare and infectious diseases, as well as other select disease targets, in which Director Ben Price purchased 30,000 shares for $38,850, compared to 0.6 million shares purchased by insiders in the past year; and
  • Peregrine Pharmaceuticals (NASDAQ:PPHM), that develops targeted monoclonal antibodies to treat solid cancers and viral infections such as hepatitis C virus, in which Director Eric Swartz purchased 16,000 shares for $9,934, the only insider purchase 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 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.

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