We present here two noteworthy insider buys and eight noteworthy insider sells from Monday's (April 30th, 2012) over 110 separate SEC Form 4 (insider trading) filings, as part of our daily and weekly coverage of insider trades (ex-healthcare and technology sectors, that were covered separately in a prior article that can be accessed by clicking on the above hyperlink). 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):
Host Hotel and Resorts Inc. (HST): HOST is a REIT that owns 110 full-service upper-upscale and luxury hotels across 26 states, D.C., Canada, Mexico and Chile. On Monday, EVP and Chief Investment Officer James Risoleo filed SEC Form 4 indicating that he sold 0.24 million shares for $4.0 million, ending with 0.32 million shares after the sale (not including derivative holdings). In comparison, insiders sold 325,000 shares in the past year, with all of the remaining 85,000 shares being sold in March.
HST reported its Q1 (March) quarter just last week, on Wednesday, beating analyst earnings estimates (14c v/s 13c), and guiding in-line FY 2012 funds from operations (FFO). The stock currently trades at forward price to funds from operations (P/FFO) ratio of 13.8 compared to the average of 12.8 for its peers in the REIT Equity Trust group. Also, it has a dividend yield of 1.4% compared to the 4.1% average for the group.
P/FFO is a more appropriate measure of value, commonly used in the REIT group, as it adds back in depreciation expenses that are typically taken out in calculating net income and earnings. This is because real estate, unlike fixed PP&E costs in the case of other groups, rarely loses value over the long-term, and in fact, most often appreciates over the long-term. So, in this case spreading out the investment cost in PP&E (in this case, mostly real estate) charges over the long-term makes little sense as is done in calculating net income; hence, depreciation is added back in and the resulting FFO is a more appropriate measure of the cash flows than is earnings.
Tupperware Brands Corp. (TUP): TUP is a manufacturer and global direct seller offering food storage containers and preparation and serving solutions for the kitchen and home, as well as a line of kitchen cookware and tools, microwave products, microfiber textiles and gifts under the Tupperware brand name. On Monday, three insiders filed SEC Forms 4 indicating that they exercised options to acquire 179,650 shares and sold those and an additional 2,000 shares for $11.5 million, with Chairman and CEO E.V. Goings selling 172,100 of those shares. In comparison, insiders sold 0.45 million shares in the past year.
TUP too, like HST above, reported its Q1 (March) quarter last Wednesday, beating analyst revenue and earnings estimates ($1.03 v/s 98c), and reaffirming FY 2021 EPS guidance. The stock is up slightly since that report, and currently trades at 11.1 forward P/E and 6.5 P/B compared to averages of 11.1 and 3.2 for its peers in the consumer staples group, while earnings are projected to rise at a strong 12.6% annual rate from $4.45 in 2011 to $5.64 in 2013, compared to the high single digit averages for its peers in the group.
On top of these, additional large insider sales on Monday (ex-healthcare and technology sectors) included:
- A $7.9 million sale by CFO Dennis Seremet at NVR Inc. (NVR), a builder of single-family detached homes, town homes and condominium buildings in 14 states under the names Ryan Homes, NVHomes, Fox Ridge Homes and Rymarc Homes;
- A $4.0 million sale by CFO Ronald Kropp at Illinois Tool Works Inc. (ITW), that is a manufacturer of plastic and metal fasteners and fastening tools for the construction, automotive and appliance markets;
- a $2.6 million sale by two insiders at Norfolk Southern Corp. (NSC), that via Norfolk Southern Railway operates a 20,000-mile railroad in 22 states and D.C.;
- a $2.1 million sale by CFO David Anderson at Honeywell International Inc. (HON), that is a diversified technology and manufacturing company that provides aerospace products and services, automation and control solutions, performance materials and technologies, and automotive products to customers worldwide;
- A $1.7 million sale by Sr. EVP David Carroll at Wells Fargo and Company (WFC) is a diversified financial services holding company with 9,000 offices primarily in the U.S., and provides retail, commercial and corporate banking services; and
- A $1.6 million sale by Director Dawn Lepore at eBay Inc. (EBAY), that is a leading provider of online marketplaces and electronic payment services via ebay.com and paypal.com.
Furthermore, insiders also reported noteworthy buys on Monday (ex-healthcare and technology sectors) in:
- Dana Holding Corp. (DAN), that is a manufacturer of modules, axles, chassis, suspension and drive-shafts for automotive OEMs, in which Director Richard Wallman purchased 10,000 shares for $147,326, the only purchase in the last six months and in comparison to 84,440 shares purchased by insiders in the past year; and
- General Electric Co. (GE), that is one of the largest and most diversified industrial conglomerates in the world, manufacturing a wide variety of products for the utility, consumer, industrial, healthcare, transportation and other industries, in which Director Rochelle Lazarus purchased 4,000 shares for $79,010, in comparison to 9,000 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 10% or 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 non-public 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 may be 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.
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.
Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.