Analyzing Tuesday's Noteworthy Insider And Institutional Buys and Sells

Includes: FRO, M, MUR, NVAX, RL, S, WMB
by: GuruFundPicks

Insiders reported yesterday that they bought and sold $228 million of stock in over 380 separate transactions in 229 different companies, including $200 million worth of stock sold and $28 million worth of stock bought. These transactions have to be reported within two days of the trade, so the transactions reported yesterday occurred sometime late last week.

We culled through these 200 or so insider buys and sells (based on yesterday’s SEC Forms 3, 4, and 5 filings), as part of our daily and weekly coverage of insider trades, and present here the most notable trades reported yesterday. Also included below are the most significant SEC 13-D/G institutional filings yesterday that are required to be filed within 10 days (for more info on how to interpret insider trades, and on Forms 13-D and 13-G, please refer to the end of this article):

Novavax Inc. (NASDAQ:NVAX): NVAX develops recombinant vaccines using its virus-like particle platform technology, targeting pandemic and seasonal influenza and other infectious diseases. Insiders currently hold 11.1 million or 10.0% of outstanding shares, and on Tuesday Director Young reported buying 200,000 shares. This is significant due to its size, and the fact that insider buying is relatively uncommon including at NVAX, where in the past three plus years insiders bought only an additional 205,000 shares. NVAX shares currently trade near 2-3 year lows, so the purchase by Director Young can be interpreted as a confidence move in the outlook for the company.

Williams Companies (NYSE:WMB): WMB is engaged in the exploration, production, gathering, processing and transportation of natural gas mainly in the U.S. Insiders currently hold 2.2 million shares or 0.4% of outstanding shares, and on Tuesday two insiders reported selling a total of 71,000 shares (regular sale) for $2.3 million. Of this, Sr. VP Wright exercised options and sold 70,000 shares, and VP Timmermans sold the remaining 1,000 shares. This is significant in that it is a big sell, and since it represents a pick-up given that insiders sold only an additional 117,600 shares during the past three months. WMB shares currently trade near their highs, and trade at a premium 18 forward P/E and at 2.4 P/B, compared to averages of 8.0 and 1.2 for the U.S. integrated oil and gas group.

Murphy Oil Corp. (NYSE:MUR): MUR is engaged in the exploration, production, refining and marketing of oil and gas in the U.S. and U.K. Insiders currently hold 2.7 million shares or 1.4% of outstanding shares, and on Tuesday Director Cosse reported exercising options and selling 20,000 shares (regular sale). This is in addition to the 24,300 shares sold that was reported on Monday by two insiders, CFO Fitzgerald (15,000 shares) and VP and Treasurer West (9,300 shares), so that three insiders reported selling a total of 44,300 shares for $2.4 million in the last two days. This is significant due to its size, the number of insiders selling, and as it represents a pick-up in selling given that over the last three months, insiders sold only a total of 135,098 shares. MUR shares currently trade at 9-10 forward P/E, and at 1.2 P/B, compared to averages of 8.0 and 1.2 for the U.S. integrated oil and gas group.

Macy’s Inc. (NYSE:M): Macy’s operates 850 department stores in 45 states, D.C., Puerto Rico and Guam. Insiders currently hold 0.7 million or 0.2% of company shares. On Tuesday two insiders, Chief Administrative Officer Cole (36,000 shares) and Chief Private Brand Officer Adams (32,000 shares) reported exercising options and selling the resulting total of 68,000 shares (regular sale) for $2.2 million. Insider selling has recently picked up at Macy’s, with a total of 134,000 shares reported sold in the last week for $4.4 million. In comparison, insiders sold only a total of 283,200 shares in the last three months (buying none). Macy’s shares have done well this year, up over 30%, and it trades at a discount 10-11 forward P/E, and at 2.4 P/B, compared to averages of 13.2 and 1.6 for the regional department stores group.

Clearwire Corp. (CLWR): CLWR provides wireless broadband networks for delivery of residential and mobile Internet access and voice services. CLWR customers connect to the Internet using licensed spectrum, thus eliminating the confines of traditional cable or phone lines. The company offers its service in 50 U.S. markets as well as in Europe. On Tuesday, Baltimore, MD-based Chesapeake Partner Management Co., with $1.3 billion in equity assets, filed Form SC-13G indicating that it now holds 13.8 million shares or 5.4% of CLWR, an increase from 4.4 million shares held at the time of its 13-F Q3 filing at the end of September. Chesapeake is the second fund we reported that recently increased its position in CLWR above the 5% threshold, the other being Dallas, TX,-based Highside Capital Management that we reported on earlier at the end of October. CLWR is currently bouncing off the lows after a recent agreement with majority owner Sprint (NYSE:S) boosted the outlook for the company.

Frontline Ltd (NYSE:FRO): FRO provides tanker transportation services of oil and oil products through a fleet of 73 vessels. On Monday, Netherlands-based ING Group, with over $25 billion in U.S. equity assets under management, filed Form SC-13G indicating that it now holds 4.1 million or 5.2% of FRO outstanding shares, an increase from the 18,300 shares held at the time of the 13-F Q3 filing at the end of September. FRO currently generates losses, and it trades at a discount 0.6 P/B and 2.9 P/CF compared to averages of 1.2 and 5.0 for the shipping group.

Ralph Lauren Corp. (NYSE:RL): RL markets premium lifestyle apparel, accessories, fragrances and home products under the Ralph Lauren, Polo and other names. Insiders currently hold 0.9 million shares or 0.9% of outstanding shares. On Tuesday, EVP Nemerov reported exercising options to acquire 6,060 shares and selling 17,200 shares (regular sell) for $2.6 million. This is in addition to the 49,213 shares that we reported on just over two weeks ago that RL insiders sold for $7.4 million. This means that insiders have sold over 66,000 shares in less than three weeks. That is a strong pick-up in selling given that insiders sold only a total of 144,508 shares in the past year (buying none). RL shares have been among the strongest long-term performers, up almost ten-fold since the beginning of 2000, and currently trade at a premium 18 forward P/E, and at 4.0 P/B, compared to averages of 14.4 and 3.4 for the apparel manufacturers group.

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 10% 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 non-public 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 may be 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.

General Discussion on Institutional 13-D/G Filings

Form 13-D is commonly referred to as “beneficial ownership report,” and is required when a person or a group of persons acquires beneficial ownership of more than 5% of the voting class of a company’s equity securities. Form 13-G is the abbreviated version of the form that is allowed under certain circumstances.

The information in forms 13-D and 13-G is extremely timely as it is required to be filed within 10 days after the purchase, in contrast to 13-F quarterly filings by Institutions that are filed every three months. The information contained in 13-F filings, thereby, can be as much as 18 weeks old by the time it is disseminated to the public. Furthermore, by virtue of their 5% ownership in public companies, the information contained in the 13-D and 13-G filings indicates only high confidence or high conviction moves by institutions and insiders, and hence can be interpreted to be of greater relevance to the investment community than the 13-F quarterly filings. Furthermore, 13-D and 13-G filings often are a precursor to hostile takeover, company breakups and other “change of control” events, and often they will include a letter to management explaining the reason for their taking a large stake in the company.

Disclaimer: Material presented here is for informational purposes only. Nothing in this article should be taken as a solicitation to purchase or sell securities. Before buying or selling any stock you should do your own research and reach your own conclusion. Further, these are our "opinions" and we may be wrong. We may have positions in securities mentioned in this article. You should take this into consideration before acting on any advice given in this article. If this makes you uncomfortable, then do not listen to our thoughts and opinions. The contents of this article do not take into consideration your individual investment objectives so consult with your own financial adviser before making an investment decision. Investing includes certain risks including loss of principal.

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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