Seeking Alpha
Long/short equity, insider ownership
Profile| Send Message|
( followers)  

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

1. Urban Outfitters (NASDAQ:URBN) is an innovative specialty retail company which offers a variety of lifestyle merchandise to highly defined customer niches through 207 Urban Outfitters stores in the United States, Canada, and Europe.

Click to enlarge

Insider sells

Scott Belair sold 516,000 shares on August 23-27. Scott Belair serves as a director of the company.

Financials

The company reported the second-quarter financial results on August 20 with the following highlights:

Revenue$676.3 million
Net income$61.3 million
Cash$363.1 million

Outlook

The company gave the following outlook on August 20:

As we look forward to the remainder of fiscal 2013, it may be helpful for you to consider the following: we are planning to open approximately 51 new stores with approximately 11 new stores expected to open in the third quarter; by brand, we are planning approximately 18 new Urban Outfitters stores globally, 15 new Free People stores, 16 new Anthropologie stores and 1 new store each for Terrain and BHLDN.

We continue to plan for gradual, year-over-year margin rate improvement. As previously discussed, we believe our margin rate improvement opportunity is greater in the fourth quarter than in the third quarter based on last year's performance. In the second quarter, we capitalized on strong trends that we saw materializing in the first quarter, resulting in our gross profit margin exceeding our Q2 internal expectations. We do not extrapolate our second quarter margin rate into third quarter performance as they are distinctly separate seasons. Our margin rate plans depend upon the improvement in our product content and ultimately lower markdown rates.

We continue to focus on effectively managing our selling, general and administrative expenses by remaining committed to investing in our business to drive long-term growth. This means increased spending, partially driven by the opening of our new West Coast fulfillment center; increased marketing and customer acquisition efforts; and further investments in technology systems and people. In total, we are planning to increase selling, general and administrative expenses in the high teens for the remainder of the year.

Capital expenditures for fiscal 2013 are planned at $190 million to $210 million driven primarily by new stores, the expansion of our home office and the completion of our new fulfillment center.

My analysis

The stock has a $46 price target from the Point and Figure chart. The stock has seen steady insider selling since June 2006. There has not been any insider buys since at least June 2006 in the stock. I am not interested in shorting the stock before the $46 level.

2. Illinois Tool Works (NYSE:ITW) is a Fortune 200 global diversified industrial manufacturer of value-added consumables and specialty equipment with related service businesses. The company focuses on profitable growth and strong returns across worldwide platforms and businesses. The businesses serve local customers and markets around the globe, with a significant presence in developed as well as emerging markets. ITW's revenues totaled $17.8 billion in 2011, with more than half of the revenues generated outside of the United States.

Insider sells

David Speer sold 163,704 shares on August 24. David Speer is Chairman and Chief Executive Officer of Illinois Tool Works.

Financials

The company reported the second-quarter financial results on July 24 with the following highlights:

Revenue$4.7 billion
Net income$881 million
Cash$1.7 billion

Outlook

The company gave the following outlook on July 24:

Given the ongoing negative impact of currency translation, additional restructuring expenditures that will now total over $100 million for the year, and expected continued sluggish demand in international markets, the company is lowering its forecast for revenue growth from continuing operations to be in a range of 1 percent to 3 percent versus the prior range of 5 percent to 7 percent. As a result, full-year diluted income per share from continuing operations is expected to be in a range of $4.03 to $4.19 versus the prior range of $4.14 to $4.38. For third quarter 2012, the company is forecasting revenue growth to be in a range from -1 percent to 1 percent and diluted income per share from continuing operations to be in a range of $1.03 to $1.11.

My analysis

The stock has a $81 price target from the Point and Figure chart. The stock has seen steady insider selling since February 2012. There has only been two insider buy transactions since February 2012. The stock is currently trading at a forward P/E of 13.27. I would recommend waiting until the $80 level before shorting the stock.

3. Rent-A-Center (NASDAQ:RCII), headquartered in Plano, Texas, is the largest rent-to-own operator in North America, focused on improving the quality of life for its customers by providing them the opportunity to obtain ownership of high-quality, durable goods such as consumer electronics, appliances, computers, furniture and accessories, under flexible rental purchase agreements with no long-term obligation. The company owns and operates approximately 3,070 stores in the United States, Canada, Mexico and Puerto Rico, and approximately 810 RAC Acceptance kiosk locations in the United States and Puerto Rico. ColorTyme, a wholly owned subsidiary of the company, is a national franchiser of approximately 220 rent-to-own stores operating under the trade name of "ColorTyme."

Insider sells

Mark Speese sold 200,000 shares on August 24. Mr. Speese has served as the company's Chairman of the Board and Chief Executive Officer since October 2001 and has served as one the company's directors since 1990.

Financials

The company reported the second-quarter financial results on July 23 with the following highlights:

Revenue$749.7 million
Net income$44.2 million
Cash$101.1 million

Outlook

2012 Guidance

  • 7% to 10% total revenue growth.
    • Low single digit growth in the Core U.S.
    • Over $300 million contribution from RAC Acceptance.
  • 2.5% to 4.5% same store sales growth.
    • Split evenly between Core U.S. and the impact of RAC Acceptance.
  • 100 basis points gross profit margin decrease.
    • Primarily due to the impact of RAC Acceptance.
  • 50 basis points operating profit margin decrease.
  • Diluted earnings per share in the range of $3.00 to $3.20, including approximately $0.25 to $0.30 per share dilution related to international growth initiatives, which now includes corporate allocations consistent with segment reporting.
  • Capital expenditures of approximately $105 million.
  • The company expects to open approximately 50 domestic rent-to-own store locations.
  • It expects to open approximately 200 domestic RAC Acceptance kiosks.
  • The company expects to open approximately 60 rent-to-own store locations in Mexico.
  • It expects to open approximately 10 rent-to-own store locations in Canada.

My analysis

The stock has a $24 bearish price target from the Point and Figure chart. The stock has seen steady insider selling since May 2008. There has been only one insider buy transaction since January 2008. The stock is currently trading at a forward P/E of 10.12. I am not interested in shorting the stock currently based on the low P/E multiple.

4. Threshold Pharmaceuticals (NASDAQ:THLD) is a biotechnology company focused on the discovery and development of drugs targeting tumor hypoxia, the low oxygen condition found in micro-environments of most solid tumors. as well as the bone marrows of some hematologic malignancies. This approach offers broad potential to treat a variety of cancers. By selectively targeting tumor cells, Threshold is building a pipeline of drugs that hold promise to be more effective and less toxic to healthy tissues than conventional anticancer drugs.

Insider sells

Wilfred Jaeger sold 786,400 shares on August 24-27 via Three Arch Partners III and Three Arch Associates III. Wilfred Jaeger serves as a director of Threshold.

Financials

The company reported the second-quarter financial results on August 2 with the following highlights:

Revenue$1.8 million
Net income$17.0 million
Cash$66.5 million

The company believes its cash, cash equivalents and marketable securities to be sufficient to fund the company's projected operating requirements for at least the next twelve months based upon current operating plans, milestone payment forecasts and spending assumptions.

Upcoming milestones

The company currently anticipates the following key clinical milestones for TH-302:

  • Report overall survival results and updated top-line efficacy analysis from the "404 trial" in the second half of 2012
  • Report interim results by year end 2012 from the "408 trial" and the "410 trial"
  • Provide an update in the first half of 2013 on the interim progression free survival futility analysis for the "406 trial"

TH-302 is a hypoxia-targeted drug candidate that was designed to be activated under extreme hypoxic conditions, a hallmark of many cancer indications. Areas of low oxygen levels (hypoxia) within tissues are common in many solid tumors due to insufficient blood vessel growth. Similarly, the bone marrow of patients with hematological malignancies has also been shown, in some cases, to be extremely hypoxic.

My analysis

The stock has a $9.75 price target from the Point and Figure chart. The stock has seen heavy insider selling this year. The company has several upcoming catalysts for this year and 2013. I am not interested in shorting the stock before the trial results.

5. 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 56,250 shares on August 23 and 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

Concho Resources announced on August 14 that it has priced an offering of $700 million aggregate principal amount of its senior unsecured notes due 2023. The notes will bear interest at a rate of 5.500% per annum and will be issued at par. Concho intends to use the net proceeds from the offering to repay a portion of the outstanding balance under its credit facility.

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 16.14. 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.

Source: Top 5 Insider Sells Filed On August 27