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 11. I chose the top five companies with insider selling in dollar terms. Here is a look at the five stocks:
1. Johnson & Johnson (JNJ) has approximately 128,000 employees at more than 250 Johnson & Johnson operating companies who work with partners in health care to touch the lives of over a billion people every day, throughout the world.
- William Weldon sold 323,150 shares on September 7 and currently controls 486,682 shares of the company. Mr. Weldon joined Johnson & Johnson in 1971 in the sales and marketing department of its McNeil Pharmaceutical subsidiary. In April 2002, he was appointed Chairman of the Board of Directors, Chief Executive Officer and Chairman of the Executive Committee. As of April 26, 2012, Mr. Weldon became Chairman of the Board of Directors.
- Stephen Cosgrove sold 20,085 shares on September 7 and currently holds 84,828 shares of the company. Stephen Cosgrove serves as Controller of the company.
The company reported the second-quarter financial results on July 17 with the following highlights:
|Net income||$1.4 billion|
On July 17 the company adjusted its earnings guidance for full-year 2012 to $5.00-$5.07 per share.
The stock has a $75 price target from the Point and Figure chart. There has been five insider sell transactions this year. The latest insider buy transaction was in August 2011. The stock is trading at a forward P/E of 12.47. I recommend waiting until the $75 price target is hit before shorting the stock.
2. Google (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.
- Lawrance Page sold 27,778 shares on September 11 and 27,778 shares on September 10 via a Rule 10b5-1 trading plan. Lawrance Page currently holds 25,679,704 shares of the company. Lawrance Page is the CEO of the company.
- Patrick Pichette sold 1,964 shares on September 10. Patrick Pichette is SVP & Chief Financial Officer of the company.
- Kavitark Shriram sold 72,604 shares on September 7. Kavitark Shriram serves as a director of the company.
- Sergey Brin sold 83,334 shares on September 4. Sergey Brin is the Co-Founder of the company.
- John Doerr sold 12,285 shares on September 4. John Doerr serves as a director of the company.
- John Hennessy sold 74 shares on September 4. John Hennessy serves as a director of the company.
- Eric Schmidt sold 50,000 shares on August 29 and 103,193 shares on August 27-28. Eric Schmidt serves as Executive Chairman of Board.
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 which has been met already. The stock has seen steady insider selling this year with 1,760,450 shares sold during the last 6 months. There has not been any insider buying during the last 6 months. The stock is trading at a forward P/E of 14. The stock is currently trading very close to its all time high levels. I have a neutral bias for the stock currently.
3. EOG Resources (EOG) is one of the largest independent (non-integrated) crude oil and natural gas companies in the United States with proved reserves in the United States, Canada, Trinidad, the United Kingdom and China.
The company reported the second-quarter financial results on August 2 with following highlights:
|Net income||$395.8 million|
Mark G. Papa, Chairman and Chief Executive Officer commented on August 2:
"Moving into the second half of the year, our focus is on realizing our 2012 goal of 37 percent crude oil production growth while we moderate our drilling activity level to stay within our capital budget."
The stock has a $120 price target from the Point and Figure chart. The stock has seen steady insider selling this year. There has not been any insider buying this year. The stock is trading at a forward P/E of 20.94. I would recommend waiting until the $120 price target is hit before shorting the stock.
4. AutoNation (AN) is transforming the automotive retail industry through bold leadership. The company delivers a superior automotive retail experience through its customer-focused sales and service processes. Owning and operating 261 new vehicle franchises, which sell 32 brands across 15 states, AutoNation is America's largest automotive retailer, with state-of-the-art operations and the ability to leverage economies of scale that benefit the customer.
Michael Maroone sold 313,423 shares on September 7-11 and currently controls 2,366,836 shares of the company. Michael Maroone has been President and Chief Operating Officer of the company since August 1999 and has served as a Director of the company since July 2005.
The company reported the second-quarter financial results July 19 with the following highlights:
|Net income||$78.6 million|
Michael J. Jackson, Chairman of the Board and Chief Executive Officer, commented during the earnings call on July 19:
Second quarter industry selling rate was 14.1 million units, a 16% improvement over prior year. As we look at the rest of 2012, we believe that improvement in new vehicle sales year-over-year will continue and I have a planning assumption for 2012 industry new vehicle sales in the mid-14 million unit range. We believe that the accelerated product launches replacement demand and robust consumer credit will continue to support a strong sales environment.
AutoNation announced on September 5 that its retail new vehicle unit sales in August 2012, as reported to the applicable automotive manufacturers, totaled 23,213, an increase of 28% as compared to August 2011.
The stock has a $48 price target from the Point and Figure chart. The stock has seen steady insider selling since July 2012. Cascade Investment LLC has been the only insider buying the shares this year. The stock is trading at a forward P/E of 14.81. I would recommend waiting until the $48 price target is hit before shorting the stock.
5. Visa (V) is a global payments technology company that connects consumers, businesses, financial institutions and governments in more than 200 countries and territories to fast, secure and reliable digital currency. Underpinning digital currency is one of the world's most advanced processing networks - VisaNet - that is capable of handling more than 20,000 transaction messages a second, with fraud protection for consumers and guaranteed payment for merchants. Visa is not a bank and does not issue cards, extend credit or set rates and fees for consumers. Visa's innovations, however, enable its financial institution customers to offer consumers more choices: pay now with debit, ahead of time with prepaid or later with credit products.
- Ellen Richey sold 93,711 shares on September 10 via a Rule 10b5-1 trading plan and currently holds 13,573 shares of the company. Ellen Richey joined Visa as the global head of enterprise risk in September 2007.
- Joseph Saunders sold 264,959 shares on September 7 via a Rule 10b5-1 trading plan and currently controls 103,907 shares of the company. Joseph Saunders is chairman and chief executive officer of Visa.
- Elizabeth Buse sold 14,401 shares on September 6 via a Rule 10b5-1 trading plan and currently controls 23,110 shares of the company. Elizabeth Buse is the group president, APCEMEA for Visa.
The company reported the fiscal third-quarter 2012 ended June 30, 2012 financial results on July 25 with the following highlights:
|Net loss||$1.8 billion|
On a GAAP basis, the company reported a net loss of $1.8 billion, inclusive of a litigation provision of $4.1 billion, related to the previously announced settlement agreement in the Multi-District Litigation case.
Visa updated its financial outlook for the following metric through 2012:
- Adjusted annual diluted class A common stock earnings per share growth in the low twenties.
Visa affirmed its financial outlook for the following metrics for 2012:
- Annual net revenue growth in the low double digits;
- Client incentives as a percent of gross revenues: 17% to 18% range;
- Marketing expenses: Under $1 billion;
- Adjusted annual operating margin of about 60%;
- Adjusted tax rate: 33% to 34% range;
- Capital expenditures $350 million to $400 million range; and
- Annual free cash flow greater than $4 billion.
The stock has a $156 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 18.42. I would recommend waiting until the $156 level before shorting the stock.
Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.