Analyzing Tuesday's Noteworthy Insider Buys And Sells In Consumer, Retail And Financial Sectors

by: GuruFundPicks

We present here two noteworthy buys and seven noteworthy sells in the consumer, retail and financial sectors from Tuesday's (March 13th, 2012) SEC Form 4 (insider trading) filings, as part of our daily and weekly coverage of insider trades. These were selected by a review of over 450 separate SEC Form 4 transactions filed by insiders on Tuesday. 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):

MGM Resorts International (NYSE:MGM): MGM owns and operates casino resorts in the U.S., and offers gaming, hotel, dining entertainment, retail and other resort amenities at its casinos. It has 20 casinos that have almost 35,000 slot machines, 2,000 table games in 2.1 million sq. feet of casino space, and a total of over 50,000 rooms. On Tuesday, EVP Aldo Manzini filed SEC Form 4 indicating that he sold 10,000 shares for $0.14 million, ending with 15,285 shares after the sale. In comparison, corporate insiders sold only an additional 6,175 shares in the past year. MGM reported a mixed Q4 last month, missing analyst earnings estimates (21c loss v/s 19c loss) and beating revenues ($2.3 billion v/s $2.2 billion), and its shares trade at 1.2 P/B compared to the average of 2.2 for its peers in the gaming group.

DirecTV Inc. (NYSE:DTV): DTV provides digital television entertainment in the U.S. and Latin America, providing direct-to-home digital TV services, as well as multi-channel video programming distribution services in the U.S. On Tuesday, EVP Patrick Doyle filed SEC Form 4 indicating that he sold 15,000 shares for $0.7 million. In comparison, insiders sold 0.11 million shares in the past year. DTV beat analyst revenue and earnings estimates in the latest Q4 reported last month, and its shares currently trade at a discount 13.8 P/E on a TTM basis versus the 20.6 average for the satellite communications group.

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. On Tuesday, Chairman & CEO James Rohr filed SEC Form 4 indicating that he exercised options and sold the resulting 145,475 shares for $8.7 million, ending with 0.17 million shares in direct and an additional 0.42 million shares in indirect holdings (not including derivative holdings). In comparison, insiders sold 0.36 million shares in the past year. PNC trades at 9 forward P/E and 1.0 P/B compared to averages of averages of 10.3 and 0.9 for its peers among major regional banks.

Prudential Financial Inc. (NYSE:PRU): PRU is one of the largest financial services institutions in the U.S. It offers life insurance, annuities, mutual funds and retirement products in the U.S., Europe, Asia and Latin America. On Tuesday, CFO Richard Carbone filed SEC Form 4 indicating that he exercised options to acquire 97,434 shares, and sold those and an additional 14,045 shares for $6.9 million, ending with almost 86,000 shares in direct and indirect holdings after the sale (not including derivative holdings). In comparison, insiders sold only an additional 152,510 shares in the past year. PRU has a dividend yield of 2.4% versus the 1.9% average for its peers, and it also trades at discount 7-8 forward P/E versus the 9.1 average for its peers in the multi-line insurance group.

On top of these, some additional large insider sales reported on Tuesday in the consumer, retail and financial sectors included:

  • a $13.3 million sale by three insiders, pursuant to 10b5-1 plans, at Tesla Motors Inc. (NASDAQ:TSLA), a manufacturer of high-performance fully electric vehicles and advanced electric vehicle power-train components, with the large majority of the sales (315,505 shares out of 372,471 shares) by Director Antonio Gracias;
  • an $8.0 million sale by two insiders at Starbucks Corp. (NASDAQ:SBUX), that operates over 17,000 coffee shops worldwide, including over 11,000 stores in the U.S., with the majority of the sales (130,218 shares out of 153,718 shares) by CFO Troy Alstead; and
  • a $2.1 million sale by two insiders at Whirlpool Corp. (NYSE:WHR), a manufacturer of consumer washers and dryers, refrigerators and freezers, dishwashers, and other household appliances.

Furthermore, insiders also reported noteworthy buys in the consumer, retail and financial sectors on Tuesday in:

  • People's United Financial (NASDAQ:PBCT), a bank holding company for People's United Bank that provides commercial banking, retail and business banking, and wealth management services to individual, corporate and municipal customers, in which CEO John Barnes purchased 8,000 shares for $100,320, compared to a total of 38,000 shares purchased by PBCT insiders in the last year;
  • Salem Communications Corp. (NASDAQ:SALM), a radio broadcasting company that provides programming to audience interested in Christian and family-themed content in the U.S., in which four insiders purchased a total of 130,500 shares for $0.4 million, compared to 152,300 shares purchased by SALM insiders in the last year;

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, 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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