A study titled "Predictive and Statistical Properties of Insider Trading" by James H. Lorie and Victor Niederhoffer reached the following conclusion:
This study indicates that proper and prompt analysis of data on insider trading can be profitable, although almost all previously published studies have reached the contrary conclusion. When insiders accumulate a stock intensively, the stock can be expected to outperform the market during the next six months. Insiders tend to buy more often than usual before large price increases and to sell more than usual before price decreases.
Based on the findings of this encouraging insider trading study, I screened for companies where at least one insider made a sell transaction filed on August 21. I chose the top five companies with insider selling in dollar terms. Here is a look at the five stocks:
1. Facebook's (FB) mission is to make the world more open and connected. People use Facebook to stay connected with friends and family, to discover what's going on in the world, and to share and express what matters to them.
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Dustin Moskovitz sold 450,000 shares on August 17-21. Dustin Moskovitz is a 10% owner according SEC filings.
The company reported the second-quarter financial results on July 26 with the following highlights:
|Net loss (GAAP)||$0.08 per share|
|Monthly active users||955 million|
The company did not give any outlook or guidance during the earnings release. David Ebersman, Chief Financial Officer, only commented the following during the conference call:
As we look to the second half of 2012, we're encouraged that the network of people using Facebook continues to grow and their engagement is strong. We remain focused on building out better and deeper social experiences for the people who use Facebook, while at the same time executing on the monetization strategies and initiatives outlined today.
The stock has seen heavy insider selling since the IPO. There has been only one insider buy since the IPO. The stock has fallen 50% since the IPO. I am not interested in shorting the stock from new 52 -week lows.
2. Affiliated Managers Group (AMG) is a global asset management company with equity investments in leading boutique investment management firms. AMG's innovative partnership approach allows each Affiliate's management team to own significant equity in their firm, while maintaining operational autonomy. AMG's strategy is to generate growth through the internal growth of existing Affiliates, as well as through investments in new Affiliates. In addition, AMG provides centralized assistance to its Affiliates in strategic matters, marketing, distribution, product development and operations. As of June 30, 2012, the aggregate assets under management of AMG's Affiliates were approximately $385 billion across a broad range of investment styles, asset classes and distribution channels.
The company reported the second-quarter financial results on July 31 with the following highlights:
|Net income||$45.5 million|
The company gave the following guidance on July 31:
Given the successful execution of our growth strategy, we are updating 2012 and providing preliminary earnings guidance for 2013. For 2012 we expect economic earnings per share to be in the range of $7.10 to $7.70, reflecting a $0.10 increase in the bottom end of our range and for 2013 we expect economic earnings per share to be in the range of $8.30 to $9.20. Our guidance assumes our normal convention of actual markets through yesterday with 2% quarterly growth beginning in the fourth quarter and a weighted average share account of $53 million.
The lower end of our 2012 and 2013 guidance includes a modest contribution from performance fees and organic growth while the upper end of the range assumes a more robust contribution for performance fees and flow expectation.
The stock has a $147 price target from the Point and Figure chart. The stock has seen steady insider selling since May 2009. The stock is currently trading at a forward P/E of 13.25. I am not interested in shorting the stock before the $150 level.
3. MRV Communications (MRVC.PK) is a leading global provider of carrier Ethernet, wavelength division multiplexing optical transport, infrastructure management equipment and solutions, as well as network integration and managed services. MRV's solutions enable the delivery and provisioning of next-generation optical transport and carrier Ethernet services over any fiber infrastructure. MRV provides equipment and services worldwide to telecommunications service providers, enterprises, and governments, enabling network evolution and increasing efficiency, while reducing complexity and costs. Through its subsidiaries, MRV operates development centers in North America and Europe, along with support centers and sales offices around the world.
Glenn Tongue sold 5,843,420 shares on August 20. Glenn Tongue serves as a director of the company.
The company reported the second-quarter financial results on August 10 with the following highlights:
|Net loss||$2.1 million|
The stock has a $4.88 price target from the Point and Figure chart. The stock has not traded at $5 level since 2007. The stock has seen more insider buying than selling this year. I am not interested in shorting the stock from current levels.
4. DST Systems (DST) provides sophisticated information processing and computer software services and products that help clients improve productivity, increase efficiency, and provide higher levels of customer service.
Robert Tritt sold 51,696 shares of the company on August 17-20. Robert Tritt serves as Executive Vice President of the company.
The company reported the second-quarter financial results on August 1 with the following highlights:
|Net income||$144.9 million|
The stock has a $40 price target from the Point and Figure chart. The stock is currently trading at a P/E ratio of 8.67 and a forward P/E of 11.92. The stock has seen more insider selling than buying this year. I am not interested in shorting the stock from the current level.
5. Select Medical Holdings Corporation (SEM) is a leading operator of specialty hospitals in the United States. As of June 30, 2012, Select operated 111 long-term acute care hospitals and 12 acute medical rehabilitation hospitals in 28 states. Select is also a leading operator of outpatient rehabilitation clinics in the United States, with approximately 956 locations in 32 states and the District of Columbia.
Bryan Cressey sold 251,628 shares on August 17-21. Bryan Cressey serves as a director of the company.
The company reported the second-quarter financial results on August 7 with the following highlights:
|Net income||$43.2 million|
Select Medical expects consolidated net operating revenue for the full-year 2012 to be in the range of $2.9 billion to $2.975 billion. Select Medical expects Adjusted EBITDA for the full-year 2012 to be in the range of $400 million to $410 million. Select Medical expects fully diluted income per common share for the full year 2012 to be in the range of $1.01 to $1.06.
The stock has a $30 price target from the Point and Figure chart. The stock is currently trading at a P/E ratio of 10.31 and a forward P/E of 10.11. The stock has seen steady insider selling this year. I am not interested in shorting the stock currently.
Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.