Seeking Alpha
Long/short equity, insider ownership
Profile| Send Message|
( followers)  

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

1. Warner Chilcott (WCRX) is a leading specialty pharmaceutical company currently focused on the women's healthcare, gastroenterology, urology and dermatology segments of the branded pharmaceuticals markets, primarily in North America. The company is a fully integrated company with internal resources dedicated to the development, manufacturing and promotion of its products.


(Click to enlarge)

Insider sells

Financials

The company reported the second-quarter financial results on August 3 with the following highlights:

Revenue $638 million
Net income $53 million
Cash $530 million

Outlook

The company gave the following guidance on August 3:

Revenue $2.4 - $2.5 billion
R&D expense $100 - $120 million
GAAP Net income $265 - $290 million

My analysis

The stock has a $32 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 P/E ratio of 11.21. I do not recommend shorting the stock before the $32 price target is hit.

2. Hyatt Hotels Corporation (H), headquartered in Chicago, is a leading global hospitality company with a proud heritage of making guests feel more than welcome. Thousands of members of the Hyatt family strive to make a difference in the lives of the guests they encounter every day by providing authentic hospitality. The company's subsidiaries manage, franchise, own and develop hotels and resorts under the Hyatt, Park Hyatt, Andaz, Grand Hyatt, Hyatt Regency, Hyatt Place and Hyatt House. Hyatt House is changing its brand identity from Hyatt Summerfield Suites. Hyatt Residential Group, a Hyatt Hotels Corporation subsidiary, develops, operates, markets or licenses Hyatt Residences and Hyatt Residence Club. As of June 30, 2012, the company's worldwide portfolio consisted of 492 properties in 45 countries.


(Click to enlarge)

Insider sells

Financials

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

Revenue $1.0 billion
Net income $39 million
Cash $900 million

Outlook

The company is providing the following information for the 2012 fiscal year:

  • Adjusted SG&A expense is expected to be approximately $320 million.
  • Capital expenditures are expected to be approximately $360 million.
  • Depreciation and amortization expense is expected to be approximately $360 million.
  • Interest expense is expected to be approximately $70 million.
  • The company expects to open over 20 hotels in 2012.

My analysis

The stock has a $53 price target from the Point and Figure chart. There has been five insider sell transactions since March 2012. There has not been any insider buying since March 2012. The stock is trading at a forward P/E ratio of 44.29. I would recommend waiting until the $53 price target is hit before shorting the stock.

3. Roper Industries (ROP) is a diversified growth company and is a constituent of the S&P 500, Fortune 1000, and the Russell 1000 indices. Roper provides engineered products and solutions for global niche markets, including water, energy, transportation, medical, education, and SaaS-based information networks.


(Click to enlarge)

Insider sells

Brian Jellison sold 200,000 shares on September 11-13 and currently holds 983,270 shares of the company. Brian Jellison serves as Chairman, President and Chief Executive Officer of the company.

Financials

The company reported the second-quarter financial results on July 30 with the following highlights:

Revenue $724.9 million
Net income $114.8 million
Cash $518.9 million

Outlook

Roper is increasing its full year adjusted diluted earnings per share guidance to $4.84 - $5.00 from $4.75 - $4.91, reflecting a ($0.04) reduction due to currency and $0.12 - $0.14 accretion from the acquisition of Sunquest. The company's guidance excludes acquisition-related expenses, debt extinguishment charges and the impact of any future acquisitions. The company's guidance includes the recognition of Sunquest's deferred revenue, a portion of which will be excluded under GAAP's purchase accounting rules which will require the deferred revenue to be reduced to fair value upon the acquisition.

My analysis

The stock has a $139 price target from the Point and Figure chart. There has been steady insider selling since June 2010. There has only been one insider buy transaction since June 2010. The stock is trading at a forward P/E ratio of 18.46. I would recommend waiting until the $139 price target is hit before shorting the stock.

4. 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.


(Click to enlarge)

Insider sells

Min Kao sold 466,000 shares on September 12-13, 150,300 shares on September 7-10, 474,000 shares on September 4-6 and 300,000 shares on August 30-31. All these sales were pursuant to a Rule 10b5-1 Stock Trading Plans adopted on August 28, 2012 by family trusts 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 Margin 52-53%
Operating Margin 21-22%
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 14.23. There is an opportunity for a short entry with a target price at $21 and a stop loss at $50.

5. Salesforce.com (CRM) is the enterprise cloud computing company that is leading customers in their transformation to become social enterprises. Social enterprises are able to connect with customers, partners and employees in entirely new ways. Based on salesforce.com's real-time, multi-tenant architecture, the company's platform and application services give customers the tools to create a true social front office and revolutionize the way they sell, service, market, collaborate, work, and innovate.


(Click to enlarge)

Insider sells

  • Craig Ramsey sold 70,000 shares on September 12 and currently holds 656,205 shares of the company. Craig Ramsey joined salesforce.com's board of directors in April 2003.
  • Sanford Robertson sold 10,000 shares on September 13 and currently does not own any shares of the company. Sanford Robertson serves as a director of the company.

Financials

The company reported the second-quarter financial results on August 23 with the following highlights:

Revenue $732 million
Net loss $9.8 million
Cash $1.8 billion

Outlook

  • Q3 FY13 Guidance: Revenue for the company's third fiscal quarter is projected to be in the range of $773 million to $777 million, an increase of 32% to 33% year-over-year. GAAP net loss per share is expected to be in the range of ($0.27) to ($0.26), while diluted non-GAAP EPS is expected to be in the range of $0.31 to $0.32.
  • Full Year FY13 Guidance: Revenue for the company's full fiscal year 2013 is projected to be in the range of $3.025 billion to $3.035 billion, an increase of 33% to 34% year-over-year. For the company's full fiscal year 2013, GAAP net loss per share is expected to be in the range of ($0.75) to ($0.72) while diluted non-GAAP EPS is expected to be in the range of $1.48 to $1.51.

My analysis

The stock has a $208 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 forward P/E of 78.89. I am not interested in shorting the stock before the $208 level.

Source: Top 5 Insider Sells Filed On September 13