Introduction to Insider Weekends

  • June 13, 2010

I am pleased to introduce a new weekly service called Insider Weekends that highlights buying and selling of stock by company insiders. Numerous academic studies have found that insiders as a whole tend to outperform the general market. A 2007 study by Alan D. Jagolinzer, an assistant professor at the Stanford University Graduate School of Business, found that even insiders that were enrolled in “automated” 10b5-1 plans where they periodically sell certain amounts of stocks according to the plan, managed to beat the market by 6% over a six month period primarily through trades they could cancel under this plan. This study prompted the SEC to review and eventually revise the 10b5-1 plan rules in March 2009.

In a market that appears directionless and bounces from day to day, reviewing insider transactions for opportunities could turn up some gems in the rough. I have personally seen many small and micro cap companies that had strong insider buying near the March 2009 lows go on to become 10 baggers.

Insiders may sell for a number of reasons including the purchase of a new home, paying for education or in some instances simply to diversify their holdings. The selling may not necessarily imply that they view the near term prospects of their company negatively. On the other hand, insider buying often implies better prospects for the company in the future or a stock that in the insider’s opinion is undervalued.

Sell/Buy Ratio:

The insider Sell/Buy ratio is calculated by dividing the total insider sales in a given week by total insider buying in that week. The adjusted ratio for last week was 9.41. In other words, insiders sold more than 9 times as much stock as they purchased. While this might seem large, the Sell/Buy ratio that we calculated for the last several weeks since we started collecting this data has been much higher and was an astounding 68 in the last week of April. The last week of April is when the market began its recent correction as you can see from the chart of the S&P 500 index below. We are calculating an adjusted ratio by removing all funds and trying as best as possible only to retain information about insiders and 10% owners who are not funds.

Given below is the list of 5 notable insider buys and 5 notable insider sales last week. I have also included a few key metrics below the name of the company. Certain industries have their preferred metrics such as sales store sales for retailers, funds from operations (FFO) for REITs and revenue per available room (RevPAR) for hotels that provide a better basis for comparison but the simple valuation metrics like Price/Earnings, Price/Sales and Enterprise Value/EBITDA included below should provide a good starting point for analyzing the majority of stocks.

Notable Insider Buys Last Week:

1. Legg Mason (LM) $32.37

Billionaire Director Nelson Peltz acquired 1 million shares of the asset management company paying $30.4 million and bumping up his holdings by 10% to 11.08 million shares. Average acquisition price $30.4.

Key Statistics:

P/E: 24.62Forward P/E: 15.64Industry P/E: 18.22
P/S: 1.95Price/Book: 0.88EV/EBITDA: 11.21
Market Cap: 5.29 billionDaily Volume: 2.89 million52 Week Range: $21.68 – $34.83

2. Saul Centers (BFS) $41.84

CEO Francis Saul II acquired 130,800 shares of this office and shopping center REIT paying $5.1 million at an average purchase price of $38.97.

Key Statistics:

P/E: 33.66Forward P/E: 16.74Industry P/E: 28.76
P/S: 4.60Price/Book: 15.05EV/EBITDA: 14.22
Market Cap: 762.87 millionDaily Volume: 85,29252 Week Range: $27.56 – $44.65

3. MF Global Holdings (MF) $6.99

New CEO and Chairman of the Board Jon Corzine acquired 352,100 shares of this financial company paying $2.499 million at a purchase price of $7.1. Directors and other senior management also acquired an additional $692,250 of stock last week.

Key Statistics:

P/E: NAForward P/E: 9.71Industry P/E: 24.75
P/S: 0.46Price/Book: 0.74EV/EBITDA: NA
Market Cap: 851.43 millionDaily Volume: 4.45 million52 Week Range: $4.88 – $9.94

4. A. H. Belo Corporation (AHC) $6.75

Chairman, President and CEO Robert Decherd acquired 234,249 shares of this newspaper and publishing company paying $1.67 million at a purchase price $7.13.

Key Statistics:

P/E: NAForward P/E: 51.92Industry P/E: 15.66
P/S: 0.26Price/Book: 0.43EV/EBITDA: 2.00
Market Cap: 140.86 millionDaily Volume: 105,54552 Week Range: $0.92 – $9.16

5. SunPower (SPWRA) $13.40

Director Thurman Rodgers acquired 100,000 shares of this solar company paying $1.04 million at a purchase price of $10.36. SunPower’s CFO also acquired 5,000 shares for $50,443 at a purchase price of $10.09.

Key Statistics:

P/E: 23.18Forward P/E: 7.53Industry P/E: 23.18
P/S: 0.75Price/Book: 0.88EV/EBITDA: 10.06
Market Cap: 1.31 billionDaily Volume: 3.33 million52 Week Range: $10.11 – $34

What is interesting about this group of companies is that with the exception of Saul Centers, all of them are trading below book value. Please note that the book value number on Yahoo Finance includes intangibles and goodwill. It is worth mentioning that besides the $5.1 million purchase last week, Francis Saul has been purchasing stock of Saul Centers on the open market since mid-March and has acquired nearly $20 million of stock over the last 12 weeks.

Another company that stood out is Center Bancorp (CNBC), the parent company of New Jersey based Union Central National Bank. Besides its eye catching stock symbol what made this company stand out was a number of purchases by its directors that totaled $817,176. Center Bancorp  had considered raising capital through a common stock offering but scrapped plans earlier this month.

Director Joseph Hyde III at the microcap biopharmaceutical company GTx (GTXI) acquired $865,535 of its stock for an average purchase price of $2.59. His total open market purchases since early May have amounted to $2.42 million. Given that the market cap of GTx is under $105 million, maybe Mr. Hyde knows something we don’t.

I also noticed a number of insider purchases by the CEO and directors of InsideArbitrage Special Reports Portfolio holding Employers Holdings (EIG). While the total transaction amount last week was less than $65,000, insiders have purchased $284,350 in stock since late May and it was good to see some insider buying in this undervalued insurance company.

Notable Insider Sales Last Week:
1. Nu Skin Enterprises (NUS) $26.77

Chairman Blake Roney sold 4 million Class A shares for $25.65, generating $102.6 million from the sale. Two additional directors also sold an additional 57,000 Class A shares at the same price. All three sellers are founders of the company and the offering was handled by JP Morgan and Deutsche Bank.

Key Statistics:

P/E: 15.86Forward P/E: 12.69Industry P/E: 17.29
P/S: 1.2Price/Book: 4.2EV/EBITDA: 8.18
Market Cap: 1.69 billionDaily Volume: 784,20252 Week Range: $13.44 – $33.99

2. Tutor Perini Corporation (TPC) $17.20

Chairman & CEO Ronald Tutor sold 600,000 shares of this construction services company generating $10 million at a selling price of $16.68.

Key Statistics:

P/E: 7.11Forward P/E: NAIndustry P/E: 18.13
P/S: 0.19Price/Book: 0.65EV/EBITDA: 3.22
Market Cap: 844 millionDaily Volume: 281,61552 Week Range: $13.83 – $25.48

3. Estee Lauder (EL) $57.86

Chairman Emeritus Leonard Lauder sold 150,000 shares of this cosmetic giant over the last two weeks generating $8.53 million at an average selling price of $56.88. Chairman of Clinique Labs LLC, Ronald Lauder, sold 125,000 shares two weeks ago generating $7.42 million at a selling price of $59.36.

Key Statistics:

P/E: 26.43Forward P/E: 18.19Industry P/E: 17.29
P/S: 1.51Price/Book: 5.57EV/EBITDA: 9.57
Market Cap: 11.52 billionDaily Volume: 2.07 million52 Week Range: $30 – $71.29

4. (CRM) $96.64 probably shows up on every insider selling screen because founder, CEO and Chairman Marc Benioff has been consistently selling shares as far back as I can remember. He currently seems to be on a 10,000 shares a day sales plan and has sold $52.22 million worth of stock since mid-March. However the reason made the list does not have to do with Marc Benioff’s sales but instead a $3.94 million sale last week by EVP Parker Harris where he sold 42,873 share at a price of $91.95. The stock hit a new 52 week high last Friday and has a very rich valuation despite the fact that they have to defer both revenue and expenses due to the subscription nature of their product.

Key Statistics:

P/E: 156.88Forward P/E: 63.16Industry P/E: 27.14
P/S: 8.63Price/Book: 10.48EV/EBITDA: 73.32
Market Cap: 12.44 billionDaily Volume: 2.26 million52 Week Range: $35.27 – $96.87

5. BJ’s Wholesale Club (BJ) $38.49

Director Herbert Zarkin sold 152,606 shares of this warehouse retailer generating $5.76 million at a selling price of $37.74. BJ’s CFO Frank Forward also sold nearly $1 million of its stock by selling 25,000 shares for $38.5. The CFO reduced his stake in the company by 26% through this sale.

Key Statistics:

P/E: 15.63Forward P/E: 13.23Industry P/E: 17.32
P/S: 0.2Price/Book: 1.96EV/EBITDA: 5.6
Market Cap: 2.07 billionDaily Volume: 1.23 million52 Week Range: $29.73 – $40.63

Voluntary Disclosure: I hold Employers Holdings (EIG) both in my personal portfolio and in the InsideArbitrage Special Reports portfolio.