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 6. I chose the top five companies with insider selling in dollar terms. Here is a look at the five stocks:
1. Hersha Hospitality Trust (HT) is a self-advised real estate investment trust, which owns 64 hotels in major urban gateway markets including New York City, Washington DC, Boston, Philadelphia, Los Angeles and Miami totaling 9,221 rooms. HT follows a highly selective investment approach and leverages operational advantage through rigorous and sustainable asset management practices.
Ifis sold 2,000,000 shares on September 4 and currently holds 16,105,630 shares of Hersha Hospitality Trust.
The company reported the second-quarter financial results on July 31 with the following highlights:
|Net income||$13.1 million|
The company reiterated its operating expectations for the remainder of 2012 as the company continues to see strong year over year trends in its markets. Based on management's current outlook, which does not assume improvement in the macro-economic environment, the company is reiterating the following operating expectations for 2012 as follows:
|Total consolidated RevPAR growth||7.0% to 9.0%|
|Total consolidated portfolio Hotel EBITDA margins||Remain consistent with 2011 Hotel EBITDA margins|
The stock has seen steady insider selling since December 2010. There has only been one insider buy transaction this year. The stock is trading at a forward P/E of 104 and has a book value of $4.25 per share. I would expect the book value of $4.25 per share to act like support for the stock.
2. LinkedIn (LNKD) connects the world's professionals to make them more productive and successful. With more than 175 million members worldwide, including executives from every Fortune 500 company, LinkedIn is the world's largest professional network on the Internet. The company has a diversified business model with revenue coming from member subscriptions, marketing solutions and hiring solutions. Headquartered in Silicon Valley, LinkedIn also has offices across the Americas, Europe, and the Asia-Pacific.
- Jeff Weiner sold 74,584 shares on September 4 and currently holds 100,902 shares of the company. Jeff Weiner is the CEO of LinkedIn.
- Dipchand Nishar sold 77,808 shares on September 4-5 and currently holds 50,000 shares of the company. Dipchand Nishar serves as Senior Vice President, Products and User Experience.
- Reid Hoffman sold 78,667 shares on September 4 via 10b5-1 trading plan. Reid Hoffman serves as a director of the company.
The company reported the second-quarter financial results on August 2 with the following highlights:
|Net income||$2.8 million|
LinkedIn is providing guidance for the third quarter of 2012, and revising guidance upward for the full year of 2012 on revenue, adjusted EBITDA, and stock-based compensation, while narrowing the full-year outlook for depreciation and amortization.
- Q3 2012 Guidance: Revenue for the third quarter of 2012 is projected to range between $235 million to $240 million. The company expects adjusted EBITDA to range between $42 million and $45 million. The company expects stock-based compensation to range between $27 and $28 million and depreciation and amortization to range between $20 million and $22 million.
- Full Year 2012 Guidance: The company has revised its expected revenue range upward to $915 million to $925 million from the prior range of $880 million to $900 million. The company has also revised upward its expected adjusted EBITDA range to $185 million to $190 million from the prior range of $170 million to $175 million. The company now expects stock-based compensation to range between $85 million and $95 million, while the range for depreciation and amortization is now $75 million to $80 million.
The stock has a $153 price target from the Point and Figure chart. The stock has seen steady insider selling since June 2012. There has not been any insider buying since at least June 2012. The stock is currently trading at a forward P/E of 93.78. I would recommend waiting until the $153 level before shorting the stock.
3. Gilead Sciences (GILD) is a biopharmaceutical company that discovers, develops and commercializes innovative therapeutics in areas of unmet medical need. The company's mission is to advance the care of patients suffering from life-threatening diseases worldwide. Headquartered in Foster City, California, Gilead has operations in North America, Europe and Asia Pacific.
- John Martin sold 145,450 shares on September 4 and currently holds 1,989,938 shares of the company. Dr. Martin joined Gilead Sciences in 1990 and currently serves as Chairman of the Board of Directors and Chief Executive Officer.
- John Milligan sold 140,000 shares on September 4 and currently holds 259,007 shares of the company. Dr. Milligan joined Gilead Sciences in 1990 as a research scientist and was made Director of Project Management and Project Team Leader for the Gilead Hoffmann-La Roche (RHHBY.OB) Tamiflu collaboration in 1996. In 2002, Dr. Milligan was appointed Chief Financial Officer. He was named Chief Operating Officer in 2007 and President in 2008.
- Gregg Alton sold 22,000 shares on September 4 and currently holds 37,790 shares of the company. Gregg Alton joined Gilead Sciences in 1999. From 2000 to 2009 he served as General Counsel. In his current role, Mr. Alton is responsible for legal affairs, corporate compliance and quality, government affairs, medical affairs, public affairs and international access activities.
The company reported the second-quarter financial results on July 26 with the following highlights:
|Net income||$711.6 million|
The stock has a $95 price target from the Point and Figure chart. There has been steady insider selling since February 2012. There has only been one insider buy transaction since February 2012. The stock is trading at a forward P/E of 13.58. I would recommend waiting until the $95 level before shorting the stock.
4. Urban Outfitters (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.
The company reported the second-quarter financial results on August 20 with the following highlights:
|Net income||$61.3 million|
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.
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 buying since at least June 2006 in the stock. The stock is trading at a forward P/E of 20.54. I am not recommending shorting the stock before the $46 level.
5. InvenSense (INVN) is the leading provider of MotionTracking solutions for consumer electronic devices in the world. The company's patented Nasiri-Fabrication platform and patent-pending MotionFusion technology address the emerging needs of many mass-market consumer applications such as, improved performance, accuracy, and intuitive motion and gesture based interfaces. InvenSense technology can be found in consumer electronic markets including smartphones, tablets, gaming devices, optical image stabilization, and remote controls for Smart TVs. InvenSense is headquartered in Sunnyvale, California and has offices in China, Taiwan, Korea, Japan, and Dubai.
Artiman sold 524,150 shares on September 4-6 via a Rule 10b5-1 Sales Plan. Artiman owns more than 10% of InvenSense.
The company reported the 2013 fiscal first-quarter (ending July 1) financial results on July 24 with the following highlights:
|Net income||$7.7 million|
Alan Krock, CFO of InvenSense, gave the following outlook on the earnings conference call on July 24:
Now to conclude I will provide our financial outlook for the second quarter of our fiscal 2013. As you have heard from us before our end markets have been seasonal in the past and particularly the gaming markets. As such our fiscal Q2 ending September and fiscal Q3 ending December are generally strongest revenue quarter. We expect Q2 target revenue in a range to be $53 million to $57 million.
As was the case in fiscal Q1 and fiscal Q2 component shortages related to the 28 nanometer technology continued to limit our customer's volume outlook for their products. However we believe that our revenue outlook of $53 million to $57 million takes into account our customers understanding of current levels of components availability.
We understand and expect that such current component constraints will ease as we progress through the remainder of calendar 2012. To support this Q2 fiscal '13 revenue outlook, we currently have in backlog in place which is a majority of the current quarter revenue target.In Q2, we expect our gross margin to continue to stay within our long term model in the mid-50% point range. In Q2 we expect operating expenses of approximately $12 million made up of $5.8 million for R&D and $6.2 million for SG&A. We therefore expect the current quarter operating margins in the low 30 percentage point range.
We expect a fully diluted share count of approximately 88 million shares and therefore GAAP basis earnings per share of approximately $0.15. As before for fiscal 2013 in total we expect our margins and operating expenses to stay within our long term model of gross margins in the mid-50 percentage points, R&D expense of 11% to 13% of sales and SG&A expense of 10% - 12% sales.
We expect operating margins of low 30 percentage point range of sale. We expect a tax rate of 22% to 23% as a result we expect net income after tax percentage of approximately 25%.
The stock has a $23.5 price target from the Point and Figure chart. There has been steady insider selling since November 2011. There has not been any insider buying since at least November 2011. The stock is trading at a forward P/E of 15.47. I am not recommending shorting the stock before the $23.5 level.
Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.