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 28. I chose the top five companies with insider selling in dollar terms. Here is a look at the five stocks:
1. Google (NASDAQ:GOOG) is a global technology leader focused on improving the ways people connect with information. Google's innovations in web search and advertising have made its website a top internet property and its brand one of the most recognized in the world.
The company reported the second-quarter financial results on July 19 with the following highlights:
|Net income||$2.8 billion|
The stock has a $685 price target from the Point and Figure chart. The stock has seen steady insider selling since July 2012. There has not been any insider buying since at least July 2012. The stock is currently trading at a forward P/E of 13.72. I am not interested in shorting the stock before the stock reaches its $685 price target.
2. Northrop Grumman (NYSE:NOC) is a leading global security company providing innovative systems, products and solutions in aerospace, electronics, information systems, and technical services to government and commercial customers worldwide.
The company reported the second-quarter financial results on July 25 with the following highlights:
|Net income||$480 million|
Wes Bush, Chairman, Chief Executive Officer and President, commented on July 25:
"Our businesses continue to perform well, and we continue to create value through a combination of performance and effective cash deployment. We're especially pleased with this quarter's robust level of new business capture, the increase in total backlog, and our strong cash generation. Based on the strength of our year-to-date results, we are again increasing our earnings guidance to a range of $7.05 to $7.25 per share."
The stock has a $77 price target from the Point and Figure chart. The stock has seen steady insider selling since February 2012. There has been two small insider buy transactions since February 2012. The stock is currently trading at a forward P/E of 9.52. I am not interested in shorting the stock before the $77 level.
3. Cooper (CBE) is a diversified global manufacturer of electrical components and tools, with 2011 revenues of $5.4 billion. Founded in 1833, Cooper's sustained success is attributable to a constant focus on innovation and evolving business practices, while maintaining the highest ethical standards and meeting customer needs. Cooper has seven operating divisions with leading positions and world-class products and brands including Bussmann electrical and electronic fuses; Crouse-Hinds and CEAG explosion-proof electrical equipment; Halo and Metalux lighting fixtures; and Kyle and McGraw-Edison power systems products. With this broad range of products, Cooper is uniquely positioned for several long term growth trends including the global infrastructure build out, the need to improve the reliability and productivity of the electric grid, the demand for higher energy-efficient products and the need for improved electrical safety. In 2011, 62 percent of total sales were to customers in the industrial and utility end-markets and 40 percent of total sales were to customers outside the United States. Cooper has manufacturing facilities in 23 countries as of 2011.
The company reported the second-quarter financial results on July 25 with the following highlights:
|Net income||$189.0 million|
Because of the previously announced transaction with Eaton Corporation (NYSE:ETN), the company has suspended providing earnings guidance updates.
The stock has a $105 price target from the Point and Figure chart. The stock has seen steady insider selling since May 2011. There has not been any insider buys since at least May 2011. The stock is currently trading at a forward P/E of 15.16. I am not interested in shorting the stock before the $105 level.
4. Saks Incorporated (NYSE:SKS) currently operates 45 Saks Fifth Avenue stores, 63 Saks Fifth Avenue OFF 5TH stores, and saks.com. Saks Fifth Avenue is proud to be named a J.D. Power and Associates 2012 Customer Service Champion and is only one of 50 U.S. companies so named.
Inmobiliaria Carso S A De C V sold 395,000 shares on August 24-27, 705,000 shares on August 22-23 and 1,520,000 shares on August 20-21. Inmobiliaria Carso S A De C V is a 10% owner of the company according to SEC filings.
The company reported the second-quarter financial results on August 14 with the following highlights:
|Net loss||$12.3 million|
The company's assumptions for the balance of 2012 are outlined below:
- Comparable store sales growth in the mid-single digit range for the second half of the fiscal year.
- Comparable store inventory levels are expected to be up in the mid-single digit range throughout the balance of the year.
- Based upon current inventory levels and composition and the company's promotional calendar and permanent markdown cadence, the company expects its year-over-year gross margin rate to increase approximately 25 to 50 basis points in the second half of the fiscal year. Management expects the year-over-year improvement will be concentrated in the fourth quarter, with the third quarter year-over-year gross margin rate expected to be relatively flat.
- As a percent of sales on a year-over-year basis, the company expects approximately 50 to 75 basis points of SG&A expense leverage in the second half of the fiscal year, with the leverage concentrated in the fourth quarter. SG&A dollar increases primarily are expected to arise from incremental variable costs associated with planned sales growth (primarily sales associates' commissions) and investment spending to support the company's omni-channel initiatives and Project Evolution.
- Other Operating Expenses (rentals, depreciation, and taxes other than income taxes) are expected to total $165 million to $167 million for the second half of 2012. Depreciation and amortization, which is included in the above amounts, should total approximately $125 million for the full fiscal year.
- Based on existing debt arrangements, maturities, and interest rates, interest expense should total approximately $19 million for the second half of 2012.
- An effective tax rate of approximately 40.0% to 41.0% for the year.
- A basic common share count of approximately 150 million and a diluted common share count of approximately 194 million for the full fiscal year. Share counts used in earnings per share calculations are expected to fluctuate by quarter during the year based on income levels, convertible debt, and equity awards.
- Net capital expenditures of approximately $110 million to $120 million for the full year.
The stock has met its bullish price objective of $12.25 from the Point and Figure chart. The stock is trading at a forward P/E ratio of 21.14. The stock has seen steady insider selling since October 2011. I have a neutral bias for the stock currently.
5. Edwards Lifesciences (NYSE:EW) is the global leader in the science of heart valves and hemodynamic monitoring. Driven by a passion to help patients, the company partners with clinicians to develop innovative technologies in the areas of structural heart disease and critical care monitoring that enable them to save and enhance lives.
- Thomas Abate sold 20,000 shares on August 24. Thomas Abate has been Corporate Vice President, Chief Financial Officer since 2006.
- Huimin Wang sold 15,000 shares on August 28. Huimin Wang is Corporate Vice President, Japan and Asia Pacific.
- John Cardis sold 7,000 shares on August 27. Mr. Cardis has been a director of the company since 2004.
The company reported the second-quarter financial results on July 24 with the following highlights:
|Net income||$67.8 million|
Michael A. Mussallem, chairman and CEO commented on July 24:
"We remain on track to deliver strong sales growth and bottom line performance this year, even with a challenging global economy. We expect our transcatheter technologies to continue to drive our growth well into the future. Also, we remain enthusiastic about the potential of our robust product pipeline to benefit even more patients and strengthen our leadership position."
"Given our updated projections and the recent movement in foreign exchange rates, we now expect full year sales of $1.90 billion to $1.97 billion, which represents an underlying growth rate of approximately 20 percent. Excluding special items, we now expect diluted earnings per share of $2.60 to $2.68, and continue to expect full year 2012 net income growth of approximately 30 percent."
"For the third quarter 2012, we project total sales of $465 million to $485 million, and diluted earnings per share, excluding special items, to be between $0.57 and $0.61."
The stock has a bearish price objective of $86 from the Point and Figure chart. The stock has seen steady insider selling since April 2012. There has not been any insider buying since at least April 2012. The stock is currently trading at a forward P/E of 29.64. There is an opportunity for a short entry from the current price. I would recommend placing a stop loss at $107 and take profit at $86.
Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.