Analyzing Monday's Noteworthy Insider Buys And Sells

by: GuruFundPicks

We present here two noteworthy buys and seven noteworthy sells from Monday's (March 5th, 2012) SEC Form 4 (insider trading) filings (ex-healthcare and technology sectors that are covered in a separate article, hyperlinked to above), as part of our daily and weekly coverage of insider trades. These were selected by a review of over 480 separate transactions in over 280 different companies filed by insiders on Monday. 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):

Zions Bancorp (NASDAQ:ZION): ZION is a multi-bank holding company that provides various banking and related products and services in the U.S. with almost 500 branches in Utah and eight other western states. On Monday, SVP James Abbott filed SEC Form 4 indicating that he purchased 16,000 common shares and an additional 10,000 9.5% Series C Non-Cumulative Perpetual Preferred Stock for $0.56 million. This is in addition to the purchase of 8,000 shares by another insider, EVP George Feiger, that we reported just yesterday. In comparison, insiders purchased 64,000 shares in the past year.

ZION shares have traded on the weak side, after a strong rally earlier, ever since the company reported missing analyst earnings estimates in its Q4 report in late January. A number of brokers, including FBR Capital and Stifel Nicolaus, subsequently downgraded the stock. Its shares currently trade at 9-10 forward P/E and 0.7 P/B compared to averages of 11.6 and 0.9 for its peers in the West/Southwest Banks group.

Newmont Mining Corp. (NYSE:NEM): NEM produces gold in the U.S., Australia, Peru, Indonesia, Canada, New Zealand, Ghana and Mexico. On Monday, 14 insiders filed SEC Forms 4 indicating that they sold 83,699 for $4.9 million, pursuant to 10b5-1 plans, with the largest sellers being CEO Richard O'Brien (28,441 shares), EVP Brian Hill (10,462 shares), and EVP Guy Lansdown (10,350 shares). In comparison, insiders sold 0.25 million shares in the past year. Furthermore, in addition to the above insider transactions, EVP and COO Gary Goldberg reported on Monday that he purchased 1,000 shares for $60,025, in comparison to 3,044 shares purchased in the past year.

NEM shares have traded weaker ever since the company reported a disappointing Q4 at the end of last month, missing analyst earnings estimates ($1.17 v/s $1.27). Its shares currently trade at 9-10 forward P/E and 2.2 P/B compared to averages of 13.2 and 4.1 for its peers in the gold mining group, while earnings are projected to increase from $4.32 in 2011 to $5.81 in 2013, at an annualized growth rate of 16.0%.

Host Hotel and Resorts Inc. (NYSE:HST): HOST is a REIT that owns 110 full-service upper-upscale and luxury hotels across 26 states, D.C., Canada, Mexico and Chile. On Monday, EVP Minaz Abji filed SEC Form 4 indicating that he sold 35,000 shares for $0.54 million, ending with 292,074 shares in common stock, and an additional 167,382 shares in restricted stock (not including derivative securities). In comparison, the last time insiders sold was in March of last year, and they sold a total of 0.35 million shares in the past year. HST reported an in-line Q4 last month, and it trades at forward price to funds from operations (P/FFO) ratio of 13.7 compared to the average of 12.7 for its peers in the REIT Equity Trust group. Also, it has a dividend yield of 1.3% compared to the 4.2% average for the group.

P/FFO is a more appropriate measure of value, commonly used in the REIT group, as it adds back in depreciation expenses that are typically taken out in calculating net income and earnings. This is because real estate, unlike fixed PP&E costs in the case of other groups, rarely loses value over the long-term, and in fact, most often appreciates over the long-term. So, in this case spreading out the investment cost in PP&E (in this case, mostly real estate) charges over the long-term makes little sense as is done in calculating net income; hence, depreciation is added back in and the resulting FFO is a more appropriate measure of the cash flows than is earnings.

Synovus Financial Corp. (NYSE:SNV): SNV is a holding company with 30 first and second tier banking subsidiaries operating via 323 offices in GA, AL, FL, SC and TN. On Monday, EVP Mark Holladay filed SEC Form 4 indicating that he sold 30,000 shares for $64,800, ending with 131,880 shares after the sale. In comparison, corporate insiders sold only an additional 998 shares in the past year. SNV currently generates losses on a TTM basis, and it trades at 0.9 P/B compared to the 0.7 average for its peers in the Southeast Banks group.

On top of these, some additional large insider sales reported on Monday included:

  • An $8.4 million sale by five insiders at Lowe's Companies Inc. (NYSE:LOW), a home improvement retailer operating 1,749 stores in the U.S., Canada and Mexico;
  • A $4.6 million sale by CEO Martin Koffel, pursuant to a 10b5-1 plan, at URS Corp. (NYSE:URS), a provider of a broad range of planning, design, and program and construction management services for public agencies and private sector clients worldwide;
  • A $2.5 million sale by SVP Duane Woods at Waste Management Inc. (NYSE:WM), a provider of integrated waste management services in the U.S., Puerto Rico, and Canada; and
  • A $2.8 million sale by four insiders at Sempra Energy (NYSE:SRE), a holding company engaged in natural gas and electric utility services to 3.5 million electric and 3.2 million gas consumers.

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.