Consumer And Retail Sectors: Analyzing Noteworthy Buys And Sells By Insiders Last Week

Includes: CL, DAN, DVD, EBAY, F, KO, ODP
by: GuruFundPicks

Overall, during the past week, corporate insiders traded a number of consumer and retail sector stocks, including buying activity in Ford Motor (NYSE:F) and Coca Cola Co. (NYSE:KO), and institutional insider selling in Dover Motorsports Inc. (NYSE:DVD). This report, part of our weekly coverage of insider trades by sector (based on last week’s SEC Forms 3, 4, and 5 filings), summarizes last week’s major insider filings in the consumer and retail sectors (for a general discussion on how to interpret insider trades, please look at the end of this article):

Ford Motor (F): Ford manufactures automobiles under the Ford and Lincoln nameplates, offers a wide range of after-sales vehicle services and products, and also offers vehicle financing, leasing and insurance services. Insiders currently hold 22.7 million shares or 0.7% of outstanding shares. During the last week, Director Irvine Hockaday’s spouse (indirect purchase) bought 3,000 shares at $11.18, increasing his holdings in the company to 36,878 shares. Mr. Hockaday’s purchase follows a string of purchases by Ford insiders in the last three months, during which they bought a total of 93,000 shares (selling none), including 50,000 shares bought by Chairman William Ford, 25,000 shares by Director Anthony Earley Jr. and a previous 15,000 shares bought by Mr. Hockaday in August. As a comparison, insiders sold a total of 2.03 million shares in the preceding nine months of the year, and bought none during that period. With Ford shares trading at 52-week lows and at prices 40% below the highs in January this year, the insider buys convey a strong confidence in the outlook for Ford going forward.

Coca Cola Co. (KO): KO manufactures non-alcoholic beverage concentrates and syrups sold to bottlers and fountain wholesalers. Insiders currently hold 16.3 million shares or 0.7% of outstanding shares. During the last week, Director Barry Diller, an astute investor and also Chairman of Interactive Corp. and founder of TV network Fox Broadcasting Company, bought 100,000 shares of KO, thereby increasing his holdings in the company to 1.74 million shares. This is the latest in a string of purchases by Mr. Diller in KO, as he has bought a total of 725,000 shares in the last 12 months. Besides Mr. Diller’s trade, Sr. VP Harry Anderson sold 20,000 shares (regular sale). Mr. Diller’s confidence in KO is particularly noteworthy as he has loaded up on the company stock while KO has been in an uptrend rising about 10% during the last year. Overall, during the last year, insiders sold 843,788 shares, and they bought 728,896 shares during that period.

Dana Holding Corp. (NYSE:DAN): DAN is a manufacturer of modules, axles, chassis, suspension and drive-shafts for automotive OEMs. Insiders currently hold 6.4 million shares or 4.3% of outstanding shares. On Monday last week, Director Richard Wallman, former CFO of Honeywell International (NYSE:HON) and a key player in the re-organization of IBM in the late 90s, bought 20,000 shares at $14.68 for $0.29 million, increasing his stake in the company to 21,366 shares. Overall, during the last three months, insiders have bought 32,000 shares, and they have sold 25,655 shares during that period. As a comparison, that illustrates the significance of insider buying in the last three months, insiders bought 74,440 shares and sold 472,392 shares during the last year.

Dover Motorsports Inc. (DVD): DVD, a leading promoter of motorsports events in the U.S., operates two permanent motorsports tracks in TN and DE. Insiders currently hold 8.5 million shares or 23.3% of outstanding shares. During the last week, institutional insider and hedge fund Marathon Partners, headed by Mario Cibelli, sold 85,500 shares. After the sale, Marathon Partners still owns 2.21 million shares of DVD. The sale by Marathon Partners should be recognized in the context that Mr. Cibelli’s hedge fund has been an active holder of DVD since early 2007, and this sell comes after the stock has fallen from $5-$6 range in 2007 to its $1.00 close on Friday.

Office Depot Inc. (NYSE:ODP): ODP is one of the largest suppliers of office products and services in the world. Insiders currently hold 5.2 million shares or 1.8% of outstanding shares. On Monday last week, Director Scott Hedrick bought 50,000 shares at $2.41 for $0.12 million. In addition, on Monday, he also exercised options and acquired 35,679 shares. After both transactions, Mr. Hedrick now owns 0.19 million shares, so the 85,679 share buy was a significant addition to his holdings in the company. Overall, insiders have been heavy buyers in the last three months, buying 150,000 shares and selling none, implying a confidence in ODP’s outlook while the shares trade near 30-month lows.

eBay Inc. (NASDAQ:EBAY): EBAY is a leading provider of online marketplaces and electronic payment services via and Insiders currently hold 141.9 million shares or 11.0% of outstanding shares. During the last week, three insiders reported selling a total of 91,380 shares. This included the SV of Legal Affairs Michael Jacobson exercising options and selling (automatic sale) the resulting 60,000 shares, CEO John Donahoe selling (automatic sale) another 8,750 shares, and CTO & SVP Mark Carges selling (regular sale) 22,630 shares, all three selling under their 10b5-1 plans. This is significant in that it is a strong acceleration in insider selling, as in comparison, insiders sold only an additional 77,500 shares (buying 3,380 shares) during the prior eleven weeks of the last three months.

Colgate Palmolive Co. (NYSE:CL): CL manufactures toothpaste, toothbrushes, dishwashing liquid, fabric conditioners, shampoos, soaps and pet nutrition. Insiders currently hold 10.6 million shares or 2.1% of outstanding shares. During the last week, five insiders sold a total of 57,533 shares. This included the President of Colgate North America Noel Wallace selling (regular sale) 31,000 shares, President & CEO of Hill’s Pet Nutrition selling (regular sale) 16,125 shares, VP of Global Social Responsibility Ronald Martin exercising options and selling (regular sale) the resulting 6,908 shares, and Chief Legal Officer Andrew Hendry selling (automatic sale) 1,000 shares. This is also significant in that it is a strong acceleration in insider selling, as in comparison, insiders sold only an 11,977 shares (buying none) during the prior eleven weeks of the last three months, and they sold only a total of 233,435 shares in the last year.

General Discussion on Insider Trading

The reports in this series identify last week’s insider trades of noteworthy significance by sector or industry group, either by virtue of their timing, their size, the number of insiders buying or selling, based on who is buying or selling, or by the trend of their buys and sales over the long-term. The rest of the series by sector and by week can be accessed from our author page.

What is Insider Trading?: Insider trading as defined here (and by the SEC) includes not just corporate insiders such as company executives and key employees, but also directors and large shareholders that have access to non-public information. Large shareholders are defined by the SEC for this purpose are those that having beneficial ownership of ten percent of more of the firm’s equity securities (including institutional investors). Also, in the U.S., “insiders” are not just limited to corporate officials and major shareholders, but also when a corporate insider “tips” a friend about material non-public information, the duty the corporate insider owes the company is now imputed to the friend who is now in violation of a duty to the company if he or she trades on the basis of that information. The U.S. is generally viewed as having the strictest laws against illegal insider trading, and makes the most serious efforts to enforce them.

While most insider trading is legal, the term is commonly used to refer to the illegal kind when a corporate insider trades based on material non-public information that can have an effect on the company’s share price. By law, insiders are prohibited from trading based on nonpublic information, but most believe that such trading does occur around the edges. The thinking goes that corporate insiders, because of their access, have the most up-to-date information on the health of their companies and the industries they operate in. Investors, as a result, can benefit from the timely knowledge of insider transactions. In fact, one University of Michigan study found that when executives bought shares in their own companies, the stocks tended to outperform the total market by 8.9% over the next 12 months. Conversely, when they sold shares, the stock underperformed by 5.4%.

Timeliness of Information: Like in the 13-D and 13-G filings for Institutions, the SEC Forms 3 and 4 on insider filings are extremely timely, and hence of greater significance, as they must be reported within two business days of the trade.

Insider Buying More Informative than Selling: As a rule, insider buys are more informative than sells. This is because insiders sell often, and they sell for a variety of reasons that may be completely unrelated to the health of the company, including, for example, to diversity their holdings or to pay for an upcoming personal expense. In contrast, insider buying is relatively uncommon, and since they have an exclusive window into their own company’s performance, it is reasonable to presume that they probably have good reasons based on information at their disposal when they are risking their own assets to buy company stock.

Regular and Automatic Trades: Insider trades maybe regular trades, or they may be automatic trades made under SEC Rule 10b5-1. It is generally believed that regular insider share purchases and sales carry more predictive value as they are made voluntarily by the insiders. Conversely, trades made under SEC Rule 10b5-1, called “Automatic Buys” and “Automatic Sells”, are part of a pre-determined plan or contract, and it is assumed that the plan was created before the insider had any privileged non-public information. Generally, almost all automatic trades are sells, not buys.

Furthermore, even automated trades made under 10b5-1 have some informative or predictive value due to loopholes in the rule that, for example, allow the insider to cancel the trading plan without any penalty or legal liability. So, the insider could set up a 10b5-1 trading plan before they have inside information (for example, from a quarterly report and guidance) while retaining the option to later cancel the plan based on the inside information. So, in effect, the execution of an automated trade also carries some predictive value as insiders retain the option under the existing rules to cancel their trades without penalty or legal liability.

Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.

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