Analyzing Thursday's Noteworthy Insider Buys And Sells In Basic Materials And Energy

by: GuruFundPicks

We present here one noteworthy buy and four noteworthy sells from Thursday's SEC Form 4 (insider trading) filings in the basic materials and energy sectors, as part of our daily and weekly coverage of insider trades. These were selected by a review of over 475 separate transactions in over 265 different companies filed by insiders on Thursday. The filings are noteworthy based on the dollar amount sold, the number of insiders buying or 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):

Pacific Ethanol Inc. (NASDAQ:PEIX): PEIX is among the largest producers of ethanol in North America. It is engaged in the production, transportation, storage and sale of ethanol and wet distillers' grain in the western U.S. On Thursday, VP Christopher Wright filed SEC Form 4 indicating that he sold 18,113 shares for $22,333, ending with 42,132 shares after the sale. Although a small sale, it is significant only in that insider selling is unusual at PEIX, and in fact the last time insiders sold was in December of 2010, more than a year ago.

The insider sale comes at a time when PEIX shares are trading near historic lows. They have been extremely volatile in the last few trading days, first up over 60% to the $1.69 intra-day high on Monday in advance and in anticipation of the Q4 report released after the market-close on Monday. Subsequently, shares came crashing down on Tuesday, after a weak Q4 in which the company missed earnings estimates (3c loss v/s 3c earnings), and they currently trade in the $1.10s, having given most of the prior gains. On a valuation basis, the company currently trades at 2.1 P/B and 0.14 PSR (price-to-sales ratio). In comparison, its peers in the ethanol group, Biofuel Energy Corp. (NASDAQ:BIOF), engaged in the production and sale of ethanol and distillers' grain, trades at averages of 0.8 and 0.12 respectively; and Green Plains Renewable Energy (NASDAQ:GPRE), operating ethanol plants, trades at averages of 0.7 and 0.10, respectively.

Thompson Creek Metals (TC): TC is a Canadian producer of molybdenum and other precious metals from mines in the U.S. and Canada. On Thursday, six insiders filed SEC Forms 4 indicating that they purchased 32,000 shares for $0.23 million, with the majority purchased by Director Timothy Haddon (10,000 shares) and Chairman and CEO Kevin Loughrey (15,000 shares). In comparison insiders purchased 74,900 shares in the past year.

The insider purchase come at a time when TC shares have been extremely weak since the company reported a weak Q4 report this past Monday, revising guidance lower to account for higher capital expenditures at its Endako and Mount Miligan projects. The weak quarter prompted a slew of brokers including Deutsche Bank, TD Securities and Credit Suisse, among others, to downgrade their ratings and/or reduce their price targets on the stock, and the shares are currently down almost 15% since the Q4 report.

Coeur d'Alene Mines Corp. (NYSE:CDE): Coeur d'Alene is engaged in the exploration and development of silver and gold mines in the U.S., Mexico, South America and Australia. On Thursday, three insiders filed SEC Forms 4 indicating that they exercised options to acquire 16,584 shares and sold 15,235 of the resulting shares for $0.46 million, with the majority of the shares (9,126) sold by SVP Thomas Angelos. This is in addition to the 8,128 shares that six insiders reported selling earlier this month. In comparison, insiders sold 66,320 shares in the past year.

CDE shares currently trade at a discount current 10.8 P/E and 1.2 P/B compared to averages of 20.1 and 3.2 for its peers in the silver mining group, and also averages of 21.1 and 2.3 for its (mid-cap) peers in the gold mining group. The company reported a mixed Q4 last week, missing earnings and beating revenues, and looking forward it is expected to increase earnings at a 12.7% annual rate from $2.60 in 2011 to $3.30 in 2013.

Gulfport Energy Corp. (NASDAQ:GPOR): GPOR is an independent oil and gas company, engaged mostly in the exploration, development and production of oil and natural gas properties in the Louisiana Gulf Coast area, the Permian Basin and the Bakken Shale, and also internationally in the Canadian oil sands, northern Thailand and in Belize. On Thursday, Chairman of the Board Mike Liddell filed SEC Form 4 indicating that he sold 100,000 shares for $3.6 million, ending with 0.62 million shares in direct and indirect holdings after the sale. GPOR just reported its Q4 last Thursday, beating earnings (59c v/s 56c) and revenues. Its shares currently trade at 10-11 forward P/E and 3.0 P/B compared to averages of 17.8 and 5.3 for its peers in the U.S. oil & gas exploration and production group.

Western Refining Inc. (NYSE:WNR): WNR refines and markets crude oil and refined products in West TX, AZ, NM, UT, CO and the mid-Atlantic region. On Thursday, Chairman of the Board and 10% owner Paul Foster filed SEC Form 4 indicating that he sold 200,000 shares in direct holdings and another 100,000 shares that he holds indirectly via Franklin Mountain Investments Ltd. Partnership, pursuant to a 10b5-1 trading plan, ending with 6.9 million shares in direct and another 18.0 million shares in indirect holdings in the company. In comparison, insiders sold 4.9 million shares in the past year. WNR shares trade at 7-8 forward P/E and 1.9 P/B compared to averages of 11.2 and 2.4 for its peers in the oil refining and marketing 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% or 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.

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

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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