Analyzing Last Week's Noteworthy Insider Trades

by: GuruFundPicks

We present here twenty noteworthy insider trades last week (April 2nd to 6th, 2012) from over 1,300 separate SEC Form 4 (insider trading) filings during the week, as part of our daily and weekly coverage of insider trades (other sectors, including insider filings in the basic materials & energy sectors and the technology sector, and healthcare sector last week, are summarized in separate articles that can be accessed by clicking on the above hyperlinks). 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):

CVS Caremark Corp. (CVS): CVS is a leading integrated pharmacy services provider in the U.S. It includes the nation's largest pharmacy chain with over 7,100 pharmacy drugstores in 41 states and D.C. Also, it provides pharmacy benefit management services to employers, insurance companies, unions, government employee groups, managed care organizations and other sponsors of health benefit plans, as well as to individuals. On Wednesday, two insiders filed SEC Forms 4 indicating that they exercised options to acquire 180,482 shares and sold those and an additional 4,608 shares for $8.3 million, pursuant to 10b5-1 plans. Of these, EVP Douglas Sgarro sold 136,912 shares, and the remaining 48,178 shares were sold by EVP Troyen Brennan. In comparison, insiders sold 0.56 million shares in the past year.

CVS shares currently trade near all-time highs, at a discount 11-12 forward P/E and 1.5 P/B compared to averages of 14.9 and 3.1 for its peers in the retail drug stores group, while earnings are projected to rise at a 14.6% compound growth rate from $2.80 in 2011 to $3.68 in 2012.

ConAgra Food Inc. (CAG): CAG is an industry-leading, branded and value-added food company that produces shelf-stable and frozen foods, processed meats, retail food, food ingredients and agricultural products that are sold in various retail and foodservice channels. On Tuesday, SVP Scott Messel filed SEC Form 4 indicating that he exercised options and sold the resulting 109,000 shares for $2.9 million, ending with under 78,000 shares in direct and indirect holdings after the sale (not including derivative holdings). In comparison, insiders sold 0.35 million shares in the past year. CAG trades at 52-week highs of the year, and at a discount 14 forward P/E and 2.2 P/B compared to averages of 39.3 and 3.6 for its peers in the diversified food manufacturers group.

Coffee Holding Co. Inc. (JVA): JVA is an integrated wholesale coffee roaster and dealer in the U.S., and offers a broad array of coffee products across the entire spectrum of consumer tastes, preferences, and price points. On Friday, two insiders filed SEC Forms 4 indicating that they sold 0.6 million shares for $6.0 million, including 0.31 million shares sold by VP David Gordon and 0.29 million shares sold by CEO Andrew Gordon. In comparison, insiders sold a total of 1.09 million shares in the past two years.

JVA shares were up strongly, by over 80% in a week, after the company reported a strong Q4 last month, in which it beat revenue estimates ($57 million v/s $43 million), while reporting earnings in-line (24c v/s 24c). However, shares have since given back most of those post-Q4 report gains, and are trading at a current 46-47 P/E (on a TTM basis) and 2.5 P/B compared to averages of 17.3 and 3.1 for its peers in the soft beverages group.

On top of these, some additional large insider sales last week include:

  • a $227.6 million sale by six insiders at Zynga Inc (ZNGA), that develops, markets and operates online social games such as CityVille, FarmVille, FrontierVille and others, making them available worldwide on various platforms, including Facebook, MySpace and Yahoo, as well as the iPad, iPhone and Android devices;
  • a $21.6 million sale by five insiders at Millennial Media Inc. (MM), a provider of mobile advertising solutions worldwide, providing tools and services to developers that allow their apps to display banner ads, interactive rich media ads, and video ads, and it also provides data and analytics that enable advertisers to gain insights into the performance of their ad campaigns and to manage their campaigns;
  • a $19.0 million sale by two insiders on Wednesday and Friday, pursuant to 10b5-1 plans, at Dunkin' Brands Group Inc. (DNKN), that franchises over 16,000 Dunkin' Donuts and Baskin-Robbins Donut and Ice Cream shops in the U.S. and 56 foreign countries, with the large majority of 0.63 million out of the 0.65 million shares sold by Director Jon Luther;
  • a $13.6 million sale by President John Partridge at Visa Inc. (V), a provider of global retail electronic payments network in support of the credit and debit payment programs of financial institutions;
  • an $11.4 million sale by three insiders at Lululemon Athletica (LULU), an operator and franchiser of yoga inspired athletic apparel stores for women, men and female youth in North America and Australia;
  • a $10.7 million sale by two insiders at Limited Brands Inc. (LTD), probably best known by its brands Victoria's Secret and Bath & Body Works, it operates as a specialty retailer of women's intimate and other apparel, beauty, and personal care products and accessories, operating over 2,600 specialty stores in the U.S., and also selling its merchandise via more than 680 company-owned and franchised locations worldwide;
  • a $4.1 million sale by Principal Chief Operating Officer James Fernandez at Tiffany & Co. (TIF), engaged in the design, manufacture and retail of fine jewelry worldwide;
  • a $3.8 million sale by Group President Glenn Jordan at Coca Cola Co. (KO), that manufactures non-alcoholic beverage concentrates and syrups sold to bottlers and fountain wholesalers;
  • a $3.6 million sale by Chairman & CEO Michael Roth at Interpublic Group of Cos. Inc. (IPG), that is a leading provider of advertising and marketing services worldwide;
  • a $2.5 million sale by Director Charlotte Weber at Campbell Soup Co. (CPB), a global manufacturer of condensed and ready-to-serve soups, and other branded convenience food products;
  • a $2.2 million sale by two insiders at discount retail chain Family Dollar Stores (FDO);
  • a $2.1 million sale by two insiders at Macy's Inc. (M), that operates 850 department stores in 45 states, D.C., Puerto Rico and Guam;
  • a $1.9 million sale by VP Mark Roualet at General Dynamics Corp. (GD), that provides business aviation, combat vehicles, weapons systems and munitions, military and commercial shipbuilding, and communications and information technology products and services worldwide;
  • a $1.8 million sale by two insiders at Smith & Wesson Holding Corp. (SWHC), the world's leading producer of quality handguns, law enforcement products, firearm safety and security products; and
  • a $1.8 million sale by CFO William Sullivan at Prologis Inc. (PLD), a REIT that acquires, develops and operates industrial properties in North America, Europe and Asia.

Furthermore, insiders also reported noteworthy buys last week in:

  • Hartford Financial Services Group (HIG), which offers individual and group life, group disability and property and casualty insurance products, primarily in the U.S., in which Director Trevor Fetter purchased 5,000 shares for $0.10 million, the only insider purchase at HIG in the last two years; and
  • Sealy Corp. (ZZ), engaged in the manufacture and marketing of bedding products, including mattresses and mattress foundations under the Sealy, Sealy Posturepedic, Stearns & Foster, and Bassett brand names in the Americas, in which Director Richard Roedel purchased 72,600 shares for $0.15 million, in comparison to 0.11 million 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 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.