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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 23. I chose the top five companies with insider selling in dollar terms. Here is a look at the five stocks:

1. Gap (NYSE:GPS) is a leading global specialty retailer offering clothing, accessories, and personal care products for men, women, children, and babies under the Gap, Banana Republic, Old Navy, Piperlime, and Athleta brands. Fiscal 2011 net sales were $14.5 billion. Gap products are available for purchase in about 90 countries worldwide through about 3,000 company-operated stores, over 200 franchise stores, and e-commerce sites.

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Insider sells

Arthud Peck sold 349,546 shares on August 22. Arthud Peck is the President of Gap North America.

Financials

The company reported the second-quarter financial results on August 16 with the following highlights:

Revenue$3.58 billion
Net income$243 million
Cash$2.1 billion

Outlook

The company has raised its estimate for fiscal year 2012 diluted earnings per share to be in the range of $1.95 to $2.00, compared with $1.56 in fiscal year 2011.

My analysis

The stock has seen steady insider selling since March 2011. There has not been any insider buys since at least March 2011. The stock is currently trading at a forward P/E of 14.76. I am not currently interested in shorting the stock.

2. Concho Resources (NYSE:CXO) is an independent oil and natural gas company engaged in the acquisition, development and exploration of oil and natural gas properties. The company's operations are focused in the Permian Basin of Southeast New Mexico and West Texas.

Insider sells

  • Steven Beal sold 100,000 shares on August 21-22. Steven Beal serves as a director of the company.
  • Timothy Leach sold 89,269 shares on August 21-23. Timothy Leach has served as the Chairman of the Board and Chief Executive Officer of the company since its formation in 2004.

Financials

The company reported the second-quarter financial results on August 6 with the following highlights:

Revenue$432.8 million
Net income$319.3 million

Outlook

The company is estimating annual production for 2012 to be in the range of 28.7-29.8 MMBoe.

My analysis

The stock has a $122 price target from the Point and Figure chart. The stock is currently trading at a forward P/E of 16.08. The stock has seen only insider selling this year. The last insider buy is from August 2011. I am not interested in shorting the stock before the $122 level.

3. The Estée Lauder Companies (NYSE:EL) is one of the world's leading manufacturers and marketers of quality skin care, makeup, fragrance and hair care products. The company's products are sold in over 150 countries and territories under the following brand names: Estée Lauder, Aramis, Clinique, Prescriptives, Lab Series, Origins, M•A•C, Bobbi Brown, Tommy Hilfiger, Kiton, La Mer, Donna Karan, Aveda, Jo Malone, Bumble and bumble, Darphin, Michael Kors, American Beauty, Flirt!, GoodSkin Labs, Grassroots Research Labs, Tom Ford, Coach, Ojon, Smashbox and Ermenegildo Zegna.

Insider sells

1992 Grat Remainder Trust Fbo William Lauder sold 115,385 shares of the company on August 21-22.

Financials

The company reported the fourth-quarter and fiscal year ended June 30, 2012 financial results on August 14 with the following highlights:

Revenue$2.3 billion
Net earnings$51.2 million
Cash$1.3 billion

Outlook

Diluted EPS for fiscal 2013 is expected to be between $2.44 and $2.56, up between 8% and 13% compared to the prior year.

My analysis

The stock has a $84 price target from the Point and Figure chart. The stock is currently trading at a forward P/E of 20.25. The stock has seen steady insider selling since July 2011. There has not been any insider buying since at least July 2011. I would wait until the $84 level before shorting the stock.

4. First PacTrust Bancorp (NYSE:BANC) is the parent holding company of Pacific Trust Bank, Irvine, California, and of Beach Business Bank, Manhattan Beach, California. The two banks provide a full range of banking products and services designed for small- to mid-sized businesses and their owners, real estate professionals and individuals interested in a comprehensive relationship with their financial institution.

Insider sells

Steven Sugarman sold 417,827 shares on August 22. Mr. Sugarman was appointed as a director of the company on November 1, 2010.

Financials

The company reported the second-quarter financial results on August 6 with the following highlights:

Net loss$0.7 million
Quarterly dividend$0.12 per share
Cash$205.8 million
Book value$13.04 per share

My analysis

The stock has a $8 bearish price objective from the Point and Figure chart. The stock is currently trading at a forward P/E of 12.85. This week's insider sell was the first one in 2012. The last insider buy was in February 2011. I am not interested in shorting the stock below its book value of $13.04 per share.

5. Zillow (NASDAQ:Z) is the leading real estate information marketplace, providing vital information about homes, real estate listings, rental listings and mortgages through its mobile applications and websites, enabling homeowners, buyers, sellers and renters to connect with real estate, rental and mortgage professionals best suited to meet their needs. More than 37 million unique users visited Zillow's mobile applications and websites in July 2012. Zillow operates Zillow.com, Zillow Mortgage Marketplace, Zillow Mobile, Postlets, Diverse Solutions and RentJuice. Zillow is headquartered in Seattle.

Insider sells

  • Richard Barton sold 89,868 shares on August 21-22. Richard Barton is co-founder and Executive Chairman of Zillow.
  • David Beitel sold 7,000 shares on August 21-22. David Beitel serves as Chief Technology Officer of Zillow.

Financials

The company reported the second-quarter financial results on August 7 with the following highlights:

Revenue$27.8 million
Net income$1.3 million
Cash$69.6 million

Outlook

Zillow is providing revenue and adjusted EBITDA outlook for the third quarter of 2012 as follows:

  • Revenue for the third quarter of 2012 is expected to be in the range of $30.0 to $31.0 million. This represents 60% year-over-year growth at the midpoint of the range over third quarter of 2011 revenue of $19.1 million.
  • Adjusted EBITDA for the third quarter of 2012 is expected to be in the range of $4.75 to $5.25 million, representing 16% of revenue at the mid-point of the range, compared to third quarter of 2011 adjusted EBITDA of $3.7 million, which represented 19% of revenue.

My analysis

The stock has a $71 price target from the Point and Figure chart. The stock is currently trading at a forward P/E of 54.27. The stock has seen steady insider selling since February 2012. There has not been any insider buying since at least February 2012. I would recommend waiting for the $71 price target before shorting the stock.

Source: Top 5 Insider Sells Filed On August 23