We present here three noteworthy insider buys and eight noteworthy insider sells from Thursday and Friday's (April 12th and 13th, 2012) over 265 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):
McKesson Corp. (MCK): MCK is a provider of ethical drugs, health and beauty care products and medical supplies and equipment to pharmacies and hospitals. On Friday, three insiders filed SEC Forms 4 indicating that they exercised options and sold the resulting 130,750 shares for $11.7 million, pursuant to 10b5-1 plans. Of these, 100,500 shares were sold by EVP, CTO & CIO Randall Spratt. In comparison, insiders sold 0.23 million shares in the past six months.
MCK shares have moved up strongly ever since the company reported a strong Q4 at the end of January, up over 15% YTD. In its Q4, MCK beat analyst revenue ($30.84 billion v/s $30.19 billion) and earnings estimate ($1.40 v/s $1.38), while reaffirming FY 2012 EPS guidance. Currently, its shares trade at 12-13 forward P/E and 3.0 P/B compared to averages of 15.7 and 3.1 for its peers in the retail drug stores group, while earnings are projected to rise at a strong 16.6% annual rate from $5.29 in 2011 to $7.19 in 2013.
Sempra Energy (SRE): SRE is a holding company engaged in natural gas and electric utility services to 3.5 million electric and 3.2 million gas consumers. On Friday, two insiders filed SEC Forms 4 indicating that they exercised options to acquire 25,125 shares, and sold the resulting and an additional 5,000 shares for $1.9 million, pursuant to 10b5-1 plans. Of these, SVP Joyce Rowland sold 19,800 shares, and EVP & General Counsel Javade Chaudhri sold the remaining 10,325 shares. In comparison, insiders sold 0.28 million shares in the past year.
SRE, as one of only three companies with an export permit for LNG, is among a handful of energy companies that are expected to benefit from the coming boom in the opening up of an export market for LNG. Combine that with stable earnings from its utility business, and a 3.8% dividend yield, and you have an attractive play trading at 14-15 forward P/E and 1.5 P/B compared to averages of 23.3 and 2.0 for its peers in the gas utilities distribution group.
Opko Health Inc. (OPK): OPK develops a broad range of pharmaceuticals and diagnostics as well as ophthalmic instrumentation products. On Thursday and Friday, CEO & Chairman Phillip Frost, MD, filed SEC Forms 4 indicated that he purchased 200,000 shares for $0.90 million under Frost Gamma Investors Trust, of while Mr. Frost is the trustee, ending with 126.4 million shares in indirect holdings. Although insider buying is common at OPK, it has picked up recently with Mr. Frost purchasing 0.49 million shares so far in April, in addition to 0.87 million shares purchased in March, and in comparison to a total of 2.60 million shares purchased by insiders in the last six months. OPK shares are currently down slightly YTD, and they trade at 8.2 P/B and 47.3 PSR (price-to-sales ratio) compared to averages of 2.9 and 8.2 for its peers in the medical instruments group.
On top of these, some additional large insider sales on Thursday and Friday include:
- a $5.6 million sale by three insiders at Qualcomm Inc. (QCOM), a designer of CDMA-based, RF and power management ICs for system software used in wireless handsets, modem cards and networks;
- a $2.8 million sale by Group SVP John Call at Ross Stores Inc. (ROST), that operates 1,037 Ross Dress for Less stores, the largest off-price apparel and home fashion retail chain in the U.S. and Guam, and it operates 88 dd's Discounts stores in seven states that feature a more moderately-priced assortment of first-quality, in-season, name brand apparel, accessories, footwear and home fashion for the entire family;
- a $2.5 million sale by Chief Yahoo David Filo at Yahoo! Inc. (YHOO), a leading global internet search engine, ecommerce and media company;
- a $1.9 million sale by the CEO of US Division Mark Light at Signet Jewelers Ltd. (SIG), a U.K.-based operator of retail jewelry stores, including 1,317 stores in the U.S. operating under the Kay Jewelers and Jared name, and another 540 stores in the U.K.;
- a $1.2 million sale by CEO Lars Bjork at business intelligence software provider Qlik Technologies (QLIK); and
- a $1.1 million sale by EVP Parker Harris at Salesforce.com Inc. (CRM), that provides customer and collaboration relationship management software and services to various businesses and industries worldwide.
Furthermore, insiders also reported noteworthy buys on Thursday and Friday in:
- Western Gas Partners LP (WES), an MLP engaged in the acquisition, ownership, development, and operation of midstream energy assets in east and west Texas, the Rocky Mountains, and the Mid-Continent, in which Director R.A. Walker purchased 900 shares for $39,497, increasing his holdings to 6,900 shares, and in comparison to 7,529 shares purchased by company management in the past year; and
- Alcoa Inc. (AA), that is engaged in the production and management of aluminum, fabricated aluminum, and alumina, in which India's leading industrialist and Chairman of Tata Group, also a Director at Alcoa, Ratan Tata purchased 1,830 shares for $18,737, increasing his holdings to 27,184 shares, in comparison to 8,223 shares purchased by AA insiders over 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 Briefing.com. 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.