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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 September 5. I chose the top five companies with insider selling in dollar terms. Here is a look at the five stocks:

1. International Wire Group Holdings (OTCPK:ITWG), through its wholly-owned subsidiary International Wire Group, is a manufacturer and marketer of wire products, including bare, silver-plated, nickel-plated and tin-plated copper wire, engineered wire products and high performance conductors for other wire suppliers, original equipment manufacturers and distributors. Its products include a broad spectrum of copper wire configurations and gauges with a variety of electrical and conductive characteristics and are utilized by a wide variety of customers primarily in the aerospace, automotive, consumer and appliances electronics/data communications, industrial/energy and medical electronics and medical device industries. The company currently manufactures and distributes its products at 20 facilities located in the United States, Belgium, France, Italy and Poland.

Insider sells

Tennenbaum Capital Partners sold 1,772,490 shares on August 31 and currently holds 1,000,000 shares of International Wire Group Holdings.

Financials

The company reported the second-quarter financial results on August 8 with the following highlights:

Revenue $193.1 million
Net income $6.4 million
Cash $10.3 million

My analysis

The stock has seen only insider selling since October 2006. The last insider buy transaction was in December 2005. The stock is trading at a P/E ratio of 6.41. I am not interested in shorting the stock currently based on the low P/E multiple.

2. Reynolds American (NYSE:RAI) is the parent company of R.J. Reynolds Tobacco Company; American Snuff Company; Santa Fe Natural Tobacco Company; and Niconovum AB.

  • R.J. Reynolds Tobacco Company is the second-largest U.S. tobacco company. The company's brands include many of the best-selling cigarettes in the U.S.: Camel, Pall Mall, Winston, Kool, Doral and Salem.
  • American Snuff Company, LLC is the nation's second-largest manufacturer of smokeless tobacco products. Its leading brands are Grizzly and Kodiak.
  • Santa Fe Natural Tobacco Company manufactures Natural American Spirit cigarettes and other additive-free tobacco products.
  • Niconovum AB markets innovative nicotine replacement therapy products in Sweden under the Zonnic brand name.


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Insider sells

Brown & Williamson Holdings sold 386,728 shares on September 5 and currently holds 235,005,489 shares of the company. Reynolds American has 565,449,042 shares outstanding which makes Brown & Williamson Holdings a 41.6% owner of Reynolds American.

Financials

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

Revenue $2.2 billion
Net income $443 million
Cash $1.0 billion

Outlook

RAI reaffirmed adjusted EPS guidance for 2012 in the range of $2.91 to $3.01, up 3.6 percent to 7.1 percent. This excludes the charge of $0.01 per share for the Engle progeny lawsuits, as well as the 2012 restructuring charge of $0.16 per share following completion of a comprehensive business analysis.

My analysis

Brown & Williamson Holdings has been selling shares since November 2011. There has been other insiders selling shares this year as well. The last insider buy transaction was in December 2011. The stock is trading at a forward P/E of 14.64. The stock is trading at new all time highs. I do not recommend shorting RAI currently.

3. Verisk Analytics (NASDAQ:VRSK) is a leading provider of information about risk to professionals in insurance, healthcare, mortgage, government, supply chain, and risk management. Using advanced technologies to collect and analyze billions of records, Verisk Analytics draws on vast industry expertise and unique proprietary data sets to provide predictive analytics and decision support solutions in fraud prevention, actuarial science, insurance coverages, fire protection, catastrophe and weather risk, data management, and many other fields. In the United States and around the world, Verisk Analytics helps customers protect people, property, and financial assets.


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Insider sells

  • Frank Coyne sold 100,000 shares on September 5 and currently controls 672,858 shares of the company. Frank Coyne is chairman and CEO of Verisk Analytics.
  • John Lehman sold 236,687 shares on August 31 - September 5 and currently controls 270,898 shares of the company. John Lehman serves as a director of the company.

Financials

The company reported the second-quarter financial results on July 31 with the following highlights:

Revenue $373.2 million
Net income $73.3 million
Cash $97.2 million

My analysis

The stock has seen steady insider selling since March 2012. There has not been any insider buying since at least March 2012. The stock is trading at a forward P/E of 21.17. The stock is trading very close to its all time high of $51. I believe there is an opportunity for short entry with a stop loss at $51.

4. Abbott (NYSE:ABT) is a global, broad-based health care company devoted to the discovery, development, manufacture and marketing of pharmaceuticals and medical products, including nutritionals, devices and diagnostics. The company employs approximately 91,000 people and markets its products in more than 130 countries.


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Insider sells

John Landgraf sold 130,944 shares on August 31 and currently controls 112,252 shares of the company. John Landgraf is Executive Vice President, Global Nutrition.

Financials

The company reported the second-quarter financial results on July 18 with the following highlights:

Revenue $9.8 billion
Net income $1.7 billion
Cash $7.0 billion

Outlook

Abbott is confirming its ongoing earnings-per-share guidance for 2012 of $5.00 to $5.10, reflecting another year of expected strong performance. Including specified items, projected earnings per share under GAAP would be $4.29 to $4.39 for the full-year 2012.

My analysis

The stock has a $94 price target from the Point and Figure chart. The stock has seen steady insider selling since March 2012. The stock has not seen any insider buying since at least March 2012. The stock is currently trading at a forward P/E of 12.24. I would recommend waiting for the $94 level before shorting the stock.

5. Broadcom Corporation (NASDAQ:BRCM), a Fortune 500 company, is a global leader and innovator in semiconductor solutions for wired and wireless communications. Broadcom products seamlessly deliver voice, video, data and multimedia connectivity in the home, office and mobile environments. With the industry's broadest portfolio of state-of-the-art system-on-a-chip and embedded software solutions, Broadcom is changing the world by connecting everything.


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Insider sells

Henry Samueli sold 200,000 shares on September 4. Dr. Henry Samueli is a Co-Founder of Broadcom Corporation and serves as Chairman of the Board and Chief Technical Officer.

Financials

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

Revenue $1.97 billion
Net income $160 million
Cash $2.18 billion

Outlook

Broadcom gave the following guidance for the third quarter 2012 on July 24:

Revenue $2 billion to $2.15 billion
Product gross margin [GAAP] Up ~200bps from Q2 2012
Product gross margin [Non-GAAP] Roughly flat from Q2 2012

My analysis

The stock has a $51 price target from the Point and Figure chart. The stock has seen steady insider selling since February 2012. There has not been any insider buying since at least February 2012. The stock is currently trading at a forward P/E of 11.45. I would recommend waiting until the $51 level before shorting the stock.

Source: Top 5 Insider Sells Filed On September 5