Insider Weekends – October 01, 2010

Welcome to edition seventeen of Insider Weekends. Insider buying increased last week with insiders purchasing $24.51 million of their stock when compared to $9.15 million in the week prior. Selling also increased with insiders selling $676.71 million worth of stock when compared to $605.14 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 down to 28. In other words, insiders sold 28 times as much stock as they purchased. The Sell/Buy ratio this week compares favorably with the week prior when the ratio stood at 66.12, the highest it had been in nearly 5 months. In case you were wondering why the ratio dropped so precipitously and why insider buying spiked last week, it had little to do with the conviction of insiders and more to do with insiders participating in stock offerings (CNBC, GEOY and FUR)  and in one case a Director providing additional funding to an unprofitable company (VLNC). The ratio spikes to 121 if I remove these special events. 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. First Citizens Bancshares Inc. (FCNCA): $187.97

Executive Vice Chairman Frank Holding acquired 5,225 shares of this bank holding company, paying $187 per share for a total amount of $978,554.

Mr. Holding has been buying shares of this regional bank for several months now but in small quantities. First Citizens BancShares is a holding company for First-Citizens Bank & Trust Company and IronStone Bank. The holding company trades just above book value and has a small dividend yield of just 0.7%. First-Citizens Bank & Trust Company has a low Troubled Asset Ratio (TAR) of 10.5 when compared to the national median of 15. IronStone Bank has a TAR of 15.2. Assets have grown at both banks year-over-year but more significantly at First-Citizens Bank & Trust Company, which now has over $18 billion in assets.

2. WESCO International Inc. (WCC): $39.57

Vice President, Human Resources Kimberly Windrow acquired 3,850 shares of this wholesaler of industrial equipment, paying $39.14 per share for a total amount of $150,691

Given the company’s low single digit margins, valuation is not very attractive. The company also has close to half a billion dollars of net debt on its balance sheet but they have managed to reduce debt over the last few quarters. A couple of additional insiders including the CFO purchased shares back in May just below Ms. Windrow’s purchase price.

3. HEICO Corp. (HEI): $46.19

As mentioned in the previous Insider Weekends post, a number of insiders have been buying the Class A shares of HEICO and the buying continued last week. Co-President Eric Mendelson acquired 4,000 shares of this aerospace / defense products & services company, paying $34.12 per share for a total amount of $136,492. Given that the stock is near its 52 week high and not exactly cheap, insiders must have some other reason to be optimistic about the company.

4. General Dynamics Corp. (GD): $62.46

Director William Fricks acquired 2,000 shares of this aerospace/defense products and services provider, paying $63.58 per share for a total amount of $127,160.

It is hard to get excited by this small purchase by the director of a company with a market cap close to $24 billion. Only one additional director purchased 3,000 shares in August. Valuation looks reasonable and the company has some of the best operating margins in its industry. There is $1.6 billion net debt on the balance sheet (after removing cash) but that should not be much of a concern as operating cash flow in 2009 was $2.85 billion.

5. United Community Financial Corp. (UCFC): $1.38

Shares of this bank holding company were purchased by four insiders:

• Director Richard Buoncore acquired 58,000 shares, paying $1.3 per share for a total amount of $75,041
• Director Richard Schiraldi acquired 18,000 shares, paying $1.3 per share for a total amount of $23,398
• Director Scott Hunter acquired 4,000 shares, paying $1.25 per share for  a total amount of $5,010
• General Counsel & Sect’y Jude Nohra acquired 2,000 shares, paying $1.3 per share for a total amount of $2,600

As mentioned in our daily insider purchase alert sent to subscribers on September 29, “This Ohio based regional bank has $2.3 billion in assets (a drop from $2.49 billion in Q2 2009), sells for a small fraction of its book value and has a very high TAR of 81.3. Tangible book value per share is $6.87 but the company continues to post losses due in part to provision for loan losses.”

Notable Insider Sales:

1. Oracle Corp. (ORCL): $27.235

CEO Larry Ellison sold 5 million shares of this enterprise software company at $27.06 per share, generating a total amount of $135.3 million.

For a second week in a row, Oracle topped our list of insider selling. As mentioned in the Insider Weekends post last week “Mr. Ellison’s shares were sold under a 10b5-1 plan adopted on April 22, 2010. It was interesting to see that these were the only sales by Mr. Ellison since that plan was adopted.”

2. Google Inc. (GOOG): $525.62

Venture Capitalist and Google Director John Doerr sold 132,215 shares at $523.18 per share, generating a total amount of $69.17 million.

He sold these shares through a couple of foundations and trusts. These sales were under a 10b5-1 trading plan.

3. Tibco Software, Inc. (TIBX): $17.99

Shares of this infrastructure software solutions provider were sold by seven insiders:

• Chief Executive Officer Vivek Ranadive sold 2.35 million shares at $18.04 per share, generating a total amount of $42.4 million
• EVP, Products & Engineering Thomas Laffey sold 196,167 shares at $18.03 per share, generating a total amount of $3.54 million
• EVP, COO Murray Rode sold 150,000 shares at $18.22 per share, generating a total amount of $2.73 million
• EVP,CFO Sydney Carey sold 110,000 shares at $18.37 per share, generating a total amount of $2.02 million
• Director Narendra Gupta sold 100,000 shares at $18.44 per share, generating a total amount of $1.84 million
• EVP, Gen Counsel & Secretary William Hughes sold 85,976 shares, at $18.25 per share, generating $1.57 million
• VP Corp Control & Princ Acc Off Troy Mitchell sold 15,690 shares, at $18.39 per share, generating $288,461

CEO Ranadive sold 2 million shares after exercising options. The rest of the 350,00 shares were sold indirectly through a trust. 14,000 of the 15,690 shares Controller Troy Mitchell sold were as a result of excerising options. All the other sales were directly preceded by options exercises of the same amount.

4. Nu Skin Enterprises Inc. (NUS): $28.95

Shares of this personal products company were sold by two insiders:

• Director Sandra Tillotson sold 774,333 shares at $27.69 per share, generating $21.44 million
• General Counsel Matthew Dorny sold 28,375 shares at $28 per share, generating $794,500

Mr. Dorny’s sale follows the exercising of options. Ms. Tillotson’s sale were part of a 10b5-1 trading plan.

5. Red Hat, Inc. (RHT): $41.27

Shares of this open source software solutions provider were sold by seven insiders:

• EVP, Chief Financial Officer Charles E Peters Jr sold 99,137 shares at $40.62 per share, generating $4.03 million
• EVP, General Counsel Michael Cunningham sold 33,564 shares at $40.75 per share, generating $1.37 million
• CEO & President James Whitehurst sold 25,000 shares at $41.11 per share, generating a total amount of $1.03 million
• Director General Henry Hugh Shelton sold 24,525 shares at $40.94 per share, generating $1 million
• Director William Kaiser sold 15,000 shares at $41.12 per share, generating $616,800
• VP/Controller Mark Cook sold 6,875 shares at $40.61 per share, generating $279,169
• Director Jeff Clarke sold 6,000 shares at $40.47 per share, generating $242,820

94,062 of the 99,137 shares CFO Peters sold, 1,875 of the 6,875 shares controller Cook sold  and 3,125 of the 33,564 shares Mr. Cunningham sold were as a result of exercising options immediately prior to the sale. The sales by Director Clarke and CEO Whitehurst were not related to excerising options and were direct sales.

Voluntary Disclosure: I have a long position in Oracle.