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 14. I chose the top seven companies with insider selling in dollar terms. Here is a look at the seven stocks:
1. Kinder Morgan (NYSE:KMI) is the largest midstream and the fourth largest energy company in North America with a combined enterprise value of approximately $100 billion. It owns an interest in or operates approximately 75,000 miles of pipelines and 180 terminals. Its pipelines transport natural gas, gasoline, crude oil, CO2 and other products, and its terminals store petroleum products and chemicals and handle such products as ethanol, coal, petroleum coke and steel. Kinder Morgan owns the general partner interest of Kinder Morgan Energy Partners (NYSE:KMP) and El Paso Pipeline Partners (NYSE:EPB), along with limited partner interests in KMP, Kinder Morgan Management (NYSE:KMR) and EPB.
The company reported the second-quarter financial results on July 18 with the following highlights:
|Net loss||$125 million|
|Quarterly cash dividend||$0.35 per share|
KMI expects to declare dividends of at least $1.40 per share for 2012, well above its 2012 budget of $1.35 per share, and an increase of approximately 17 percent over its 2011 declared dividend of $1.20 per share.
As a result of the acquisition of El Paso and KMI's normal expected annual growth, KMI continues to expect its dividend per share to grow at an average annual rate of around 12.5 percent through 2015 from its budgeted 2011 dividend of $1.16 per share.
The stock has a 3.86% dividend yield and is trading at a forward P/E of 27.45. The stock is currently trading above its 200 day moving average. The stock has seen more insider selling than buying this year. The latest insider buy transaction was in June 2012. I have a neutral bias for the stock currently.
2. Yelp Inc. (NYSE:YELP) connects people with great local businesses. Yelp was founded in San Francisco in July 2004. Since then, Yelp communities have taken root in major metros across the US, Canada, UK, Ireland, France, Germany, Austria, The Netherlands, Spain, Italy, Switzerland, Belgium, Australia, Sweden, Denmark, Norway and Finland. Yelp had a monthly average of approximately 78 million unique visitors in Q2 2012. By the end of the same quarter, Yelpers had written more than 30 million rich, local reviews, making Yelp the leading local guide for real word-of-mouth on everything from boutiques and mechanics to restaurants and dentists. Yelp's mobile applications were used on 7.2 million unique mobile devices on a monthly average basis during Q2 2012.
The company reported the second-quarter financial results on August 1 with the following highlights:
|Net loss||$2.0 million|
As of August 1, Yelp is initiating guidance for its third quarter of 2012 and raising its full year 2012 revenue and adjusted EBITDA guidance.
- For the third quarter of 2012, net revenue is expected to be in the range of $34.5 million to $35.5 million. Adjusted EBITDA is expected to be in the range of $750,000 to $1.25 million.
- For the full year of 2012, net revenue is expected to be in the range of $135 million to $136 million, representing growth of 62% to 63% compared to the full year of 2011. Adjusted EBITDA is expected to be in the range of $3 million to $4 million.
The stock has a $43 price target from the Point and Figure chart. There has been three insider sell transactions this year. There has only been one insider buy transaction this year. I would recommend waiting until the $43 price target is hit before shorting the stock.
3. Fusion-io (NYSE:FIO) delivers the world's data faster. The company's Fusion ioMemory platform and software defined storage solutions accelerate virtualization, databases, cloud computing, big data and performance applications. From e-commerce retailers to the world's social media leaders and Fortune Global 500 companies, the company's customers are improving the performance and efficiency of their data centers with Fusion-io technology to accelerate the critical applications of the information economy.
- David Flynn sold 199,100 shares on September 14 pursuant to a Rule 10b5-1 trading plan. David Flynn is Chairman, CEO & President of the company.
- Rick White sold 207,578 shares on September 14 pursuant to a Rule 10b5-1 trading plan. Rick White is Chief Marketing Officer and Executive Vice President of the company.
The company reported the financial results for its fiscal year 2012 (ended June 30, 2012) on August 9 with the following highlights:
|Net loss||$5.6 million|
The company gave the following guidance on August 9:
First quarter of fiscal year 2013:
- Revenue is expected to modestly increase from fiscal Q4.
- Non-GAAP gross margin is expected to be in the range of 56 to 58%.
- Non-GAAP operating margin is expected to be approximately 10%.
- Diluted shares outstanding is expected to be approximately 110 million shares.
Fiscal Year 2013:
- Revenue growth is expected to be in the range of 45 to 50%.
- Non-GAAP gross margin is expected to be in the range of 56 to 58%.
- Non-GAAP operating margin is expected to be approximately 12%.
- Non-GAAP tax rate is expected to be approximately 35 to 40%.
- Diluted shares outstanding is expected to be approximately 114 million shares.
- Capital Expenditures are expected to be in the range of $20 to $25 million.
The stock has a $54.5 price target from the Point and Figure chart. The stock has seen steady insider selling since May 2012. There has not been any insider buying since at least May 2012. The stock is trading at a forward P/E of 50.25. I would recommend waiting until the $54.5 price target is hit before shorting the stock.
4. AutoNation (NYSE: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 118,677 shares on September 12 and 313,423 shares on September 7-11. Michael Maroone currently controls 2,248,159 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.
- Michael Short sold 29,084 shares on September 13. Michael Short has served as AutoNation's Executive Vice President and Chief Financial Officer since January 2007.
The company reported the second-quarter financial results on 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 15.06. I would recommend waiting until the $48 price target is hit before shorting the stock.
5. Masco Corporation (NYSE:MAS) is one of the world's leading manufacturers of home improvement and building products, as well as a leading provider of services that include the installation of insulation and other building products.
Richard Manoogian sold 300,000 shares on September 14 and currently holds 5,598,282 shares of the company. Richard Manoogian serves as a director of the company.
The company reported the second-quarter financial results on July 30 with the following highlights:
|Net income||$34 million|
Masco's CEO, Tim Wadhams commented on July 30:
"We continue to make progress on our strategic initiatives, which include leveraging our brands, reducing our costs, improving our Installation and Cabinet segments and strengthening our balance sheet. Our Installation and Cabinet segments improved their performance by approximately $20 million in operating profit, in aggregate, compared to second quarter 2011, and for the first half of 2012, these segments achieved over $45 million of operating profit improvement. We expect both segments to benefit in the second half of 2012 from the continued improvement in North America new home construction activity. However, implementing our countertop and dealer strategies for Cabinets has been challenging and will reduce our second half expectations for Cabinet segment improvement. In addition, while we are relatively pleased with our first half results, we expect the second half of 2012 to be less robust than previously anticipated, as the U.S. economy appears to be losing momentum and Euro-zone economies continue to struggle."
The stock has a $24.5 price target from the Point and Figure chart. There has been two insider sell transactions this year. There has not been any insider buying this year. The stock is trading at a forward P/E of 28.21. I would recommend waiting until the $24.5 price target is hit before shorting the stock.
6. USANA Health Sciences (NYSE:USNA) develops and manufactures high-quality nutritional, personal care, and weight-management products that are sold directly to Associates and Preferred Customers throughout the United States, Canada, Australia, New Zealand, Hong Kong, China, Japan, Taiwan, South Korea, Singapore, Mexico, Malaysia, the Philippines, the Netherlands, the United Kingdom, Thailand, France and Belgium.
- Myron Wentz sold 102,204 shares on September 12-14 pursuant to a Rule 10b5-1 trading plan. Myron Wentz serves as a director of the company.
- Robert Auciaux sold 4,455 shares on September 14. Robert Auciaux serves as a director of the company.
The company reported the second-quarter financial results on July 24 with the following highlights:
|Net income||$16.7 million|
The company provided the following updated financial outlook for 2012 on July 24:
- Consolidated net sales between $630 million and $640 million, versus the previous outlook of between $610 million and $625 million.
- Earnings per share between $4.10 and $4.20, versus the previous outlook of between $3.60 and $3.70.
Chief Financial Officer Doug Hekking commented:
"Leverage gained on higher sales, better than expected gross margins, and a lower effective tax rate were the main factors that contributed to our strong bottom-line performance this quarter. These same factors, as well as a reduced number of diluted shares outstanding, are the driving forces behind the increase in our earnings per share estimate for the remainder of the current fiscal year. Our strong performance during the first six months of the year has laid the foundation for what we believe will be a solid second half of 2012. As such, we are raising our financial outlook for fiscal 2012."
The stock has a $58 price target from the Point and Figure chart. There has been steady insider selling since November 2010. There has only been one insider buy transaction since November 2010. The stock is trading at a forward P/E of 9.96. I would recommend waiting until the $58 price target is hit before shorting the stock.
7. Kimco Realty Corporarion (NYSE:KIM) is a real estate investment trust [REIT] headquartered in New Hyde Park, N.Y., that owns and operates North America's largest portfolio of neighborhood and community shopping centers. As of June 30, 2012, the company owned interests in 926 shopping centers comprising 136 million square feet of leasable space across 44 states, Puerto Rico, Canada, Mexico and South America. Publicly traded on the NYSE since 1991, and included in the S&P 500 Index, the company has specialized in shopping center acquisitions, development and management for more than 50 years.
- Milton Cooper sold 225,000 shares on September 14 pursuant to a trading plan previously established under Rule 10b5-1 by the reporting person. This trade fulfills the plan. Milton Cooper currently holds 10,463,939 shares of the company. Milton Cooper is the Executive Chairman of the Board of Directors for the company.
- Frank Lourenso sold 22,500 shares on September 14 pursuant to a trading plan previously established under Rule 10b5-1 by the reporting person. This trade fulfills the plan. Frank Lourenso currently holds 189,217 shares of the company. Frank Lourenso serves as a director of the company.
- Michael Pappagallo sold 30,000 shares on September 14 and currently controls 440,416 shares of the company. Michael Pappagallo is Executive Vice President and Chief Operating Officer of the company.
The company reported the second-quarter financial results on July 31 with the following highlights:
|Net income||$48.3 million|
|FFO as adjusted per diluted share||$0.31|
The company revised its 2012 full-year guidance range for FFO as adjusted, which does not include any estimate for transactional activities or non-operating impairments, on July 31 as follows:
|Revised Guidance||Previous Guidance|
|FFO as adjusted per diluted share||$1.24-$1.26||$1.22-$1.26|
The stock has a $29.5 price target from the Point and Figure chart. There has been steady insider selling since September 2009. There has not been any insider buying since at least September 2009. The stock is trading at a forward P/E of 52.58. I would recommend waiting until the $29.5 price target is hit 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. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.