Analyzing Friday's Noteworthy Insider Buys And Sells

by: GuruFundPicks

Insiders reported on Friday that they bought and sold stock in over 500 separate transactions in over 250 different companies. These transactions have to be reported within two days of the trade, so the transactions occurred sometime last week. We culled through these 500 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 on Friday (except for the insider trades in the technology and healthcare sectors that were covered separately in another article); notable based on the dollar amount sold, the number of insiders selling, and based on whether the overall buying or selling represents a strong pick-up based on historical buying and selling in the stock (for more info on how to interpret insider trades, please refer to the end of this article):

National Oilwell Varco (NYSE:NOV): NOV is engaged in the manufacture and sale of equipment, components and products used in oil and gas drilling and production, it provides oilfield services and supplies, and it distributes products and provides supply chain integration services to the upstream oil & gas industry worldwide. On Friday, SVP Dwight Rettig filed SEC Form 4 indicating that he exercised options and sold the resulting 30,667 shares for $2.5 million. In comparison, insiders sold a total of 0.24 million shares during the past year. NOV reported its Q4 on Thursday before market-open, beating analyst revenue ($4.26 billion v/s $4.03 billion) and earnings ($1.37 v/s $1.30) estimates, and was subsequently upgraded by Morgan Stanley and Global Hunter; currently, the stock trades at 12 forward P/E and 1.8 P/B compared to averages of 12.9 and 2.3 for its peers in the oil field machinery and equipment group.

eBay Inc. (NASDAQ:EBAY): EBAY is a leading provider of online marketplaces and electronic payment services via and On Friday, SVP Michael Jacobson filed SEC Form 4 indicating that he exercised options and sold the resulting 80,000 shares for $2.6 million, pursuant to a 10b5-1 plan, and ending with 0.4 million shares after the sale. In comparison, insiders sold a total of 0.81 million shares in the past year. EBAY reported its Q4 last month, on January 18th, beating revenue and earnings estimates but guiding lower; the stock has since moved higher, and trades at a discount 12-13 forward P/E and 2.3 P/B compared to averages of 71 and 2.2 for its peers in the e-commerce group, while earnings are projected to rise at a 14.3% compound growth rate from $2.03 in 2011 to $2.65 in 2013.

Manitowoc Co. (NYSE:MTW): MTW is a manufacturer of cranes and related lifting equipment for the energy, petrochemical, construction and mining markets, and it also serves the foodservice industry by providing ice machines, ice/beverage dispensers and refrigeration products. On Friday, SVP Maurice Jones filed SEC Form 4 indicating that he exercised options and sold the resulting 44,271 shares for $0.67 million, pursuant to a 10b5-1 plan. Also, the filing indicated that the shares sold were for tax planning purposes. This sale is on top of the 19,829 share sale that two insiders (including Mr. Jones) reported in Form 4 filings just the prior day, on Thursday. In comparison, the last time insiders sold prior to these sales was in February of last year, and overall they sold a total of 72,123 shares in the past year. MTW just reported a good Q4 on Tuesday after the market-close, beating both analyst revenue ($1.03 billion v/s $0.96 billion) and earnings (14c v/s 13c) estimates; the stock currently trades at 10 forward P/E and 4.1 P/B compared with averages of 12.3 and 2.0 for the construction and mining machinery group.

Principal Financial Group (NYSE:PFG): PFG offers life, health and disability insurance, and it also provides retirement services, annuities, residential mortgage loan origination, and related financial services. On Friday, President Daniel Houston filed SEC Form 4 indicating that he exercised options and sold the resulting 13,515 shares for $0.38 million, pursuant to a 10b5-1 plan, ending with 107,506 shares in direct and 2,586 shares in indirect holdings after the sale. Also, in comparison, insiders sold only an additional 37,230 shares in the past year. PFG has a dividend yield of 2.5% versus the 1.9% average for its peers in the multi-line insurance group, and it also trades at a discount 7-8 forward P/E versus the 9.1 average for the group.

On top of these, some additional large insider trades on Friday included a $2.0 million sale, pursuant to a 10b5-1 plan, by Group President Elizabeth Buse at Visa Inc. (NYSE:V); a $4.1 million sale by SVP Randall MacDonald at International Business Machines Corp. (NYSE:IBM); a $2.4 million sale by two insiders (CFO Mark Flaherty and Director John Miller), pursuant to 10b5-1 plans, at beauty supply store chain operator Sally Beauty Holdings (NYSE:SBH); a $1.8 million sale by Chairman & CEO John Schiller, pursuant to a 10b5-1 plan, at oil & gas exploration and production company Energy XXI (NASDAQ:EXXI); a $12.8 million sale by three insiders, with most of the shares sold pursuant to 10b5-1 plans, at toy maker Mattel Inc. (NASDAQ:MAT); and a $3.7 million sale by Director & 10% owner Dennis (Chip) Wilson, pursuant to a 10b5-1 plan, at Lululemon Athletica (NASDAQ:LULU), an operator and franchiser of yoga inspired athletic apparel stores for women, men and female youth in North America and Australia.

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.

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.

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