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

1. The global leader in satellite navigation, Garmin (GRMN) and its subsidiaries have designed, manufactured, marketed and sold navigation, communication and information devices and applications since 1989 - most of which are enabled by GPS technology. Garmin's products serve automotive, mobile, wireless, outdoor recreation, marine, aviation, and OEM applications. Garmin is incorporated in Switzerland, and its principal subsidiaries are located in the United States, Taiwan and the United Kingdom.

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Insider sells

Min Kao sold 300,000 shares on August 30-31 via a Rule 10b5-1 Stock Trading Plan adopted on August 28, 2012 by a family trust of which the reporting person and his spouse are the trustees. Dr. Min Kao co-founded Garmin Corporation with Gary Burrell in October 1989 to integrate Global Positioning System (GPS) technology into navigation devices for multiple markets.

Financials

The company reported the second-quarter financial results on August 1 with the following highlights:

Revenue$718 million
Net income (Pro Forma)$192.9 million
Cash$1.37 billion

Outlook

The company updated its 2012 guidance on August 1. The new 2012 guidance is:

Revenue$2.75 billion to $2.80 billion
Gross Margin52-53%
Operating Margin21-22%
EPS (Pro Forma)$2.70 - $2.85

My analysis

The stock has a $21 price target from the Point and Figure chart. The stock has seen steady insider selling since December 2010. There has not been any insider buying since at least December 2010. The stock is currently trading at a forward P/E of 13.96. There is an opportunity for a short entry with target price at $21 and stop loss at $50.

2. Jazz Pharmaceuticals (JAZZ) is a specialty biopharmaceutical company focused on improving patients' lives by identifying, developing and commercializing products that address unmet medical needs. The company has a diverse portfolio of products in the areas of narcolepsy, oncology, pain, psychiatry and women's health. The company's U.S. marketed products in these areas include: Xyrem (sodium oxybate), Erwinaze (asparaginase Erwinia chrysanthemi), Prialt (ziconotide) intrathecal infusion, FazaClo (clozapine, USP) HD and FazaClo LD, Luvox CR (fluvoxamine maleate) and Elestrin (estradiol gel). Outside of the U.S., Jazz Pharmaceuticals also has a number of products marketed by its international division, EUSA Pharma.

Insider sells

Kenneth O'Keefe sold 200,000 shares on August 30 and currently controls 661,212 shares of the company. Kenneth O'Keefe serves as a director of the company.

Financials

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

Revenue$130 million
Net income$27.1 million
Cash$154.5 million

Outlook

Jazz Pharmaceuticals is providing the following updated financial guidance for 2012:

Revenue$605-$615 million
GAAP Net Income$139-$154 million
GAAP Net Income Per Diluted Share$2.34-$2.57

My analysis

The stock has a $39 bearish price objective from the Point and Figure chart. The stock has seen steady insider selling since January 2012. There has not been any insider buying since at least December 2011. The stock is currently trading at a forward P/E of 7.97. There is an opportunity for a short entry with target price at $39 and stop loss at $50.

3. Allergan (AGN) is a multi-specialty health care company established more than 60 years ago with a commitment to uncover the best of science and develop and deliver innovative and meaningful treatments to help people reach their life's potential. Today, the company has approximately 10,500 highly dedicated and talented employees, global marketing and sales capabilities with a presence in more than 100 countries, a rich and ever-evolving portfolio of pharmaceuticals, biologics, medical devices and over-the-counter consumer products, and state-of-the-art resources in R&D, manufacturing and safety surveillance that help millions of patients see more clearly, move more freely and express themselves more fully.

Insider sells

  • Douglas Ingram sold 100,000 shares on August 30. Mr. Ingram has been Executive Vice President and President, Europe, Africa and Middle East since August 2010.

  • Louis Lavigne sold 15,000 shares on August 29. Louis Lavigne serves as a director of the company.

Financials

The company reported the second-quarter financial results on August 1 with the following highlights:

Revenue$1.49 billion
Net income$295 million
Cash$2.67 billion

Outlook

For the third quarter of 2012, Allergan expects:

  • Total product net sales between $1,370 million and $1,445 million.
  • Non-GAAP diluted earnings per share attributable to stockholders between $1.02 and $1.04.

Upcoming milestones

During the second quarter of 2012:

Allergan submitted an application with Health Canada seeking approval for the use of BOTOX (onabotulinumtoxinA) as treatment of overactive bladder with symptoms of urinary incontinence, urgency, and frequency, in adult patients who have an inadequate response to or are intolerant of an anticholinergic medication.

My analysis

The stock has a $110 price target from the Point and Figure chart. The stock has seen steady insider selling since February 2011. There has been only two insider buy transactions since February 2011. The stock is trading at a forward P/E of 18.09. I am not interested in shorting the stock before the $110 level.

4. Seagate Technology (STX) is the world leader in hard disc drives and storage solutions.

Insider sells

  • Patrick O'Malley sold 151,054 shares on August 29 and currently holds 415,328 shares of the company. Patrick O'Malley assumed the role of EVP & CFO effective August 25, 2008.
  • Robert Whitmore sold 50,000 shares on August 30 and currently holds 76,419 shares of the company. Robert Whitmore serves as Executive Vice President and CTO for Seagate.
  • David Richarz sold 50,000 shares on August 30 and currently holds 21,288 shares of the company. David Richarz serves as Executive Vice President of the company.
  • Stephen Luczo sold 607,231 shares on August 27. Stephen Luczo serves as the Chairman of the Board, CEO and President of the company.

Financials

The company reported the financial results for the fiscal year ended June 29, 2012 with the following highlights:

Revenue$14.9 billion
Net income$2.9 billion
Cash$2.1 billion
Quarterly dividend$0.32 per share

Outlook

Stephen J. Luczo, Chairman, Chief Executive Officer and President commented during the conference call on July 30:

"For the September quarter, we expect to maintain market share, achieve revenue of approximately $4 billion, deliver gross margins exceeding 30% and have operating expenses that remain relatively flat. At this time, we believe the December quarter's addressable market will improve for the September quarter, and these conditions will put us on a path to revenues of at least $17 billion in calendar 2012 and exiting the year with margins above 30%. For fiscal 2013, assuming modest market growth, we are planning to maintain market share and deliver at least 25% annual growth in non-GAAP earnings."

My analysis

The stock has a $62 price target 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 P/E ratio of 4.96 and a forward P/E of 4.59. I am not interested in shorting the stock based on the very low P/E ratio of the stock.

5. Saks Incorporated (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.

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Insider sells

Inmobiliaria Carso S A De C V sold 550,000 shares on August 29-30, 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 currently holds 23,350,000 shares of the company. Saks has 151.2 million shares outstanding which makes Inmobiliaria Carso S A De C V a 15.5% owner of Saks.

Financials

The company reported the second-quarter financial results on August 14 with the following highlights:

Revenue$704.1 million
Net loss$12.3 million
Cash$139 million

Outlook

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.

My analysis

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 20.98. The stock has seen steady insider selling since October 2011. The last insider buys are from August 2011. I have a neutral bias for the stock currently.

Source: Top 5 Insider Sells Filed On August 31