Analyzing Thursday's Noteworthy Insider Buys And Sells

by: GuruFundPicks

Insiders reported that on Thursday, January the 5th, they bought and sold stock in just under 330 separate transactions in over 175 different companies. These transactions have to be reported within two days of the trade, so the transactions occurred sometime earlier this week. We culled through these 330 or so insider buys and sells (based on 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 Thursday (for more info on how to interpret insider trades, please refer to the end of this article):

Flotek Industries Inc. (NYSE:FTK): FTK provides oilfield chemicals, artificial lift, and down-hole drilling and production equipment to the oil and gas industry. Insiders hold 3.6 million or 7.8% of outstanding shares, and on Thursday, three insiders reported buying a total of 30,500 shares for $0.35 million. The sellers included COO Steven Reeves (20,000 shares), VP & Chief Accounting Officer Johnna Kokenge (7,500 shares) and Director Richard Wilson (3,000 shares). This is on top of 64,340 shares that insiders reported selling just in the last month, and then another 64,000 were reported sold in November, so that overall insiders have sold a total of 158,840 shares just in the last two months. In comparison, insiders sold 66,000 shares in the remaining ten months of the past year. FTK shares currently trade near three-year highs, and at a premium 15 forward P/E, and at 6.7 P/B, compared to averages of 11.2 and 2.7 respectively for its peers in the oil field services group, while earnings are projected to rise from 67c in 2011 to 80c in 2012.

Heckmann Corp. (HEK): HEK provides water solutions for shale or unconventional oil and gas exploration. On Thursday, Chairman & CEO Richard Heckmann filed SEC Form 4 indicating that he sold 75,000 shares for $0.5 million, under a 10b5-1 plan, and held 0.25 million shares in direct and an additional 12.2 million shares in indirect holdings after the sale. This is on top of the 175,000 shares that CEO Heckmann reported selling just in the last six weeks. In comparison, insiders sold only a total of 295,000 shares in the past year (buying 53,500 shares). HEK shares have rallied recently and currently trade near three-year highs at 42 forward P/E and 2.7 P/B compared to averages of 11.8 and 3.4 for its peers in the oil field services group.

Pandora Media Inc. (NYSE:P): Pandora is a premier provider of internet radio in the U.S., offering listeners a streaming music based on analysis of user listening behavior. Its services are offered on traditional computers, and on smartphones such as Android phones, Blackberries and the iPhone. Insiders currently hold 21.7 million or 13.6% of outstanding shares. On Thursday, five insiders filed SEC Forms 4 indicating that they sold a total of 197,096 shares for $2.0 million. The sellers included CFO Steven Cakebread (40,000 shares), CTO Thomas Conrad (38,096 shares) and Chief Revenue Officer John Trimble (25,000 shares), all shares sold resulting from the exercising of options and sold under 10b5-1 plans; and additional shares sold from Chief Strategy Officer & Director Timothy Westergren (85,000 shares) and Director Robert Kavner (9,000 shares), also resulting from the exercise of options. This is in addition to the 137,712 shares that we reported earlier that insiders sold just in the last three weeks, so that insiders have reported selling a total of 334,808 shares for $3.3 million just in the last three weeks. In comparison, insiders sold only an additional 0.46 million shares in the past year. Pandora shares have been very weak since its IPO, and currently trade near their lows, so the multiple insiders selling in this context is notable in that it may signify that at least some insiders do not see value in Pandora's shares even at these levels.

PNC Financial Services Group (NYSE:PNC): PNC operates as a diversified financial services company, offering retail banking, corporate and institutional banking, asset management, and residential mortgage banking services, via 2,470 branches in PA, NJ, DE, Washington D.C., and ten other states. Insiders currently hold 1.6 million or 0.3% of outstanding shares. On Thursday, three insiders sold a total of 315,800 shares for $18.7 million. The majority of the sales were by CEO James Rohr (273,000 shares) and President Joseph Guyaux (42,000 shares), both from exercising options and sold under 10b5-1 plans, and after the sale they held 0.6 and 0.1 million shares respectively in direct and indirect holdings, so that the shares sold represented a significant portion of their holdings in the company. Also, in comparison, overall insiders sold only an additional 115,710 shares in the past year, with over half of the remaining shares sold in December alone, so that the recent selling by insiders represents a strong pickup from earlier levels. PNC trades at 9-10 forward P/E and 0.9 P/B compared to averages of averages of 8.7 and 0.8 for its peers among major regional banks.

Visa Inc. (NYSE:V): V provides a global retail electronic payments network in support of the credit and debit payment programs of financial institutions. Insiders currently hold 0.7 million shares or 0.1% of outstanding shares. On Thursday, Group President of Americas William Sheedy filed SEC Form 4 indicating that he exercised options and sold the resulting 52,000 shares for $5.3 million under a 10b5-1 plan, and that he held 33,193 shares after the sale was completed, so that the shares sold were a significant portion of his holdings in the company. In comparison, insiders sold only an additional 0.2 million shares in the past year. Visa shares have been among the top gainers among large-caps this year, up over 40% in the past year, and they trade at 15 forward P/E and 2.6 P/B compared to averages of 13.2 and 6.2 for its peers in the financial transaction services group.

Travelers Companies Inc. (NYSE:TRV): TRV provides commercial and personal property and casualty insurance products and services to businesses, government units, associations and individuals primarily in the U.S. Insiders hold 2.1 million or 0.5% of outstanding shares. On Thursday, two insiders sold a total of 33,750 shares for $2.0 million. Most of the sales (31,750 shares) were by EVP Doreen Spadorcia, who exercised options to acquire 26,750 shares and then sold the 31,750 shares under a 10b5-1 plan, and after the sale she held 15,878 shares of company stock. In comparison, insiders sold only 170,273 shares in the past three months and 1.1 million shares in the past year. TRV trades at a discount 10-11 forward P/E and 1.0 P/B compared to averages of 13.5 and 1.8 for its peers in the property and casualty insurance group.

On top of these, some additional large insider trades on Thursday included a $5.9 million sale by two insiders at QUALCOMM Inc. (NASDAQ:QCOM), a provider of digital telecom products and services; a $4.8 million sale by two insiders at Apollo Group Inc. (NASDAQ:APOL), a provider of secondary education services; a $1.0 million sale by CEO Ryan Petersen at solid-state drives (NYSE:SSD) manufacturer OCZ Technology Group (NASDAQ:OCZ); and a $0.25 million sale by CEO Clay Siegall at development-stage biotech company Seattle Genetics Inc. (NASDAQ:SGEN).

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.

Credit: Fundamental data in this article were based on SEC filings, I-Metrix® by Edgar Online®, Zacks Investment Research, Thomson Reuters and The information and data is believed to be accurate, but no guarantees or representations are made.

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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