Insider Weekends – September 10, 2010

Welcome to edition fourteen of Insider Weekends. Insider buying decreased last week with insiders purchasing just $13.15 million of their stock when compared to $20.55 million in the week prior. Selling on the other hand increased with insiders selling $475.55 million worth of stock when compared to $364.14 million in the week prior.

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 went up to 36.16. In other words, insiders sold more than 36 times as much stock as they purchased. The Sell/Buy ratio this week compares unfavorably with the week prior when the ratio stood at 17.22. We are calculating an adjusted ratio by removing transactions by funds and companies and trying as best as possible only to retain information about insiders and 10% owners who are not funds or companies.

Note: As mentioned in the first post in this series Introduction to Insider Weekends, certain industries have their preferred metrics such as same 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 than simple valuation metrics. However 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:

1. American Eagle Outfitters, Inc. (AEO): $14.34

Shares of this apparel and accessories retailer were acquired by two insiders:

• Chairman of the Board Jay Schottenstein acquired 500,000 shares of this apparel and accessories retailer, paying $13.58 per share for a total amount of $6.8 million.
• Vice Chairman Roger Markfield acquired 10,000 shares, paying $13.52 per share for a total amount of $135,200.

In the daily insider purchases update I sent to Special Reports subscribers on Thursday night, I wrote the following about Mr. Schottenstein’s purchase,

“This large purchase was done indirectly through a limited liability company, the members of which are trusts in which Mr. Schottenstein’s wife is the sole trustee according to the filing. Besides this purchase, the only other purchase I see is 1,500 shares acquired by a director back in March.  I am not too keen on retail apparel chains and think Aeropostale (ARO) presents an attractive alternative to American Eagle should you desire a retail apparel chain in your portfolio.”

Investors bid American Eagle stock up 6.6% on Friday when the S&P 500 was up less than half a percent. Fellow value investor Adib Motiwala has done a great job of analyzing Aeropostale in a two part article that you can read here and here.

2. Prospect Capital Corporation (PSEC): $9.79

Shares of this private equity firm were acquired by two insiders:

• Chief Executive Officer John Barry acquired 105,391 shares, paying $9.59 per share for a total amount of $1 million.
• Chief Operating Officer Grier Eliasek acquired 16,000 shares of this mezzanine finance and private equity firm, paying $9.6 per share for a total amount of $153,522.

Besides the 105,391 shares that were directly acquired by Mr. Barry, he also acquired an additional 21,892 shares by reinvesting dividends in July and August. There have been other purchases by insiders of this private equity firm with the CFO buying a small amount this month and the CEO purchasing nearly $1 million worth of stock in May. Mr. Barry has purchased $2.65 million worth of stock since the start of this year. The company trades below book value and has a dividend yield of 12.5%. The yield looks unusually high and the dividend was cut recently. Given the nature of the firm, I would expect further volatility in both earnings and dividend payouts.

3. TechTarget, Inc. (TTGT): $5.01

Director Bruce Levenson acquired 84,183 shares of this publishing company, paying $4.93 per share for a total amount of $414,857.

TechTarget is a publisher that operates 60 web sites that target the tech sector. Along with the rest of the publishing sector, the company took a hit in 2009 and had been posting a string of quarterly losses before achieving profitability last quarter. This cash rich company has nearly a third of its $213 million market cap in cash and investments on the balance sheet ($71.4 million). The company is trading close to book value but I have not noticed any other significant insider purchases recently. The founder and CEO Greg Strakosch exercised options in mid-August and did not turn around and sell them immediately as is usually the case.

4. Vistaprint N.V. (VPRT): $36.19

Director Mark Thomas acquired 9,000 shares of this business services provider, paying $32.24 per share for a total amount of $290,192.

This is an interesting purchase in light of the sell-off in August, which saw its stock drop from over $50 to $28. Another director also purchased stock in late August. The company has a strong balance sheet with no net debt, profit margins of over 10% and double digit ROA and ROE.

5. Dr Pepper Snapple Group, Inc. (DPS): $34.73

Shares of this beverage company were purchased by three insiders:

• President & CEO acquired 5,000 shares, paying $34.85 per share for a total amount of $174,720
• Executive Vice President & CFO Martin Ellen acquired 2,000 shares, paying $34.91 per share for a total amount of $69,820
• Senior Vice President David Thomas acquired 600 shares, paying $34.86 per share for a total amount of $20,914

Notable Insider Sales:

1. Limited Brands, Inc. (LTD): $25.38

Chairman & CEO Leslie Wexner sold 4,500,000 shares of this apparel retailer (parent of Victoria’s Secret and Bath & Body Works) at $25.37 per share, generating $114.17 million.

2. Cognizant Technology Solutions Corp. (CTSH): $62.56

Shares of this IT consulting & technology services provider were sold by multiple insiders but with the exception of the two listed below, the rest were options related sales:

• President & CEO Francisco D’Souza sold 354,993 shares at $62.44 per share, generating $22.17 million. 242,280 out of those 351,812 shares were sold as a result of exercising options just prior to the sale.
• Director Thomas Wendel sold 60,000 shares at $62.05 per share, generating $3.72 million. 40,000 out of those 60,000 shares were sold as a result of exercising options just prior to the sale.

3. Urban Outfitters Inc. (URBN): $33.18

Director Scott Belair sold 191,300 shares of this retail apparel chain at $33.20 per share, generating $6.34 million. Mr. Belair is not just the director of the company but also co-founded Urban Outfitters in 1970.

4. Fiserv, Inc. (FISV): $52.7

Director Donald Dillon sold 115,080 shares of this software and business services provider at $52.42 per share, generating $6.03 million.

5. FMC Technologies, Inc. (FTI): $65.89

Shares of this oil & gas services provider were sold by three insiders:

• President & COO John Gremp sold 30,000 shares at $65.28 per share, generating $1.96 million
• Vice President & Controller Jay Nutt sold 26,317 share at $66.10 per share, generating $1.74 million
• EVP & CFO William Schimann sold 25,000 shares at $65.73 per share, generating $1.64 million

21,280 of Mr. Nutt’s shares were sold as a result of exercising options just prior to the sale.

Contributing Author: Ann Kumar