Analyzing Wednesday's Noteworthy Insider Trades

by: GuruFundPicks

We present here two noteworthy insider buys and six noteworthy insider sells from Wednesday's (April 11, 2012) over 190 separate SEC Form 4 (insider trading) filings, as part of our daily and weekly coverage of insider trades. 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):

LinkedIn Corp. (LNKD): LNKD operates an online professional network via its proprietary social networking platform that enables members to create, manage and share professional identities online, build and engage with their professional network, access shared knowledge and insights, and find business opportunities. On Wednesday, two insiders filed SEC Forms 4 indicating that they converted Class B common stock into 57,677 Class A common stock, and sold the resulting Class A common shares for $5.7 million, pursuant to 10b5-1 plans. Overall, LNKD insiders sold 0.31 million shares so far in April, in addition to the 0.36 million shares sold in March, and an additional 0.22 million shares sold in February.

LNKD was recently named (this Tuesday) by JPMorgan as one of 15 companies it views as potentially the next Apple, due to its secular growth opportunities, strong market position and attractive valuation. As the only social media company in the bunch, a category expected by many to lead the market going forward, this is a strong validation by a major investment bank, especially given AAPL's 50-fold rise in the past decade. LNKD shares are currently trading near their highs, in what appears to be a bullish consolidation pattern that could be a precursor to a strong technical breakout. The shares are up over 60% YTD, and currently trade at 95 forward P/E and 15.9 P/B, while earnings growth is projected at a 77.3% annual rate from 35c in 2011 to $1.10 in 2013.

Amarin Corp. (AMRN): AMRN is a clinical stage Ireland-based global pharmaceutical group, which develops novel drugs for the treatment of cardiovascular diseases using its proprietary advanced oral and trans-dermal drug delivery technologies. On Wednesday, President John Thero filed SEC Form 4 indicating that he exercised options and sold the resulting 150,926 shares for $1.5 million, pursuant to a 10b5-1 plan, and ending with no ordinary share holdings (not including derivative holdings). In comparison, insiders sold 0.76 million shares in the past year.

AMRN shares are consolidating at their highs after spiking higher in the middle of March, prior to and just after the company announced last Tuesday that the USPTO (U.S. Patent and Trademark Office) published notification of a Notice of Allowance for its '598 patent for AMR-101, a prescription grade omega-3 fatty acid for the treatment of patients with very high triglyceride levels that are at increased risk for developing coronary artery disease. The issuance of the Notice of Allowance is a significant step toward the commercialization of AMR-101, and the street is rife with speculation of partnering possibilities, or even an outright acquisition at a stiff premium to current prices in the $11-$12 range. Furthermore, MKM partners last month reiterated its buy and $20 price target on AMRN.

InVivo Therapeutics Holdings Corp. (NVIV): NVIV is a development stage medical device company focused on developing biopolymer scaffolding devices for the treatment of spinal cord injuries. On Wednesday, CEO & CFO Francis Reynolds filed SEC Form 4 indicating that he sold 270,000 shares for $0.61 million, ending with 14.4 million shares after the sale. In comparison, insiders sold 0.76 million shares in the past year. NVIV shares have been in a consolidation pattern this year after a near five-fold rise last November on excitement about its spinal cord injury treatment under development.

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

  • a $9.9 million sale by SVP Matthew Fiorilli at Bed Bath & Beyond (BBBY), that operates a chain of retail stores that sell a range of domestic merchandise and home furnishing items via 1,139 Bed Bath & Beyond, Christmas Tree Shops, Harmon and Harmon Face Values stores;
  • a $2.0 million sale by three insiders at film and TV entertainment producers and distributor Lions Gate Entertainment (LGF); and
  • a $1.9 million sale by CEO Paul Murry at PVH Corp. (PVH), that designs and markets men's, women's and children's dress shirts, sportswear, footwear, accessories, and other related products.

Furthermore, insiders also reported noteworthy buys on Wednesday in:

  • Alexza Pharmaceuticals (ALXA), a development stage biotech company, focused on the research, development and commercialization of a novel proprietary drug delivery system for the acute treatment of central nervous system conditions, in which Director Gordon Ringold filed SEC Form 4 indicating that he purchased 100,000 shares for $54,000, increasing his holdings to 0.24 million shares in direct and indirect holdings, and in comparison to 0.39 million shares purchased by insiders in the past year; and
  • Novavax Inc. (NVAX), a development stage biotech company focused on the development of recombinant vaccines using its virus-like particle (NYSE:VLP) platform technology, targeting pandemic and seasonal influenza, and other infectious diseases, in which Director Richard Douglas filed SEC Form 4 indicating that he purchased 50,000 shares for $60,500, increasing his holdings to 200,000 shares, and in comparison to 0.46 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.