Insider Weekends – October 08, 2010

Welcome to edition eighteen of Insider Weekends. Insider buying decreased significantly last week with insiders purchasing $5.27 million of their stock when compared to $24.51 million in the week prior. Selling also decreased with insiders selling $525.69 million worth of stock when compared to $676.71 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 spiked sharply up to 99.84. In other words, insiders sold almost 100 times as much stock as they purchased. The Sell/Buy ratio this week compares unfavorably with the week prior when the ratio stood at 28 and is the highest it has ever been since we started collecting this data in April.

As you might recollect, the ratio dropped last week because of insider buying that was related to stock offerings and open market purchases. The ratio spiked to 121 after removing those 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:

Besides the usual five top insider purchases, I have include two more this week because both these companies, MEMC Electronic Materials and First Citizens Bancshares, have either seen multiple purchases by multiple insiders or multiple purchases by the same insider over the last several weeks.

1. BancorpSouth, Inc. (BXS): $14.03

Director Hassell Henry Franklin acquired 100,000 shares of this bank holding company, paying $12.95 per share for a total amount of $1.3 million.

This purchase was done on Aug 20 but the filing appears to have been late and came in on October 06, 2010. Hence the purchase price is below current levels. This Southern regional bank trades for 1.25 times book value and has a dividend yield of 6.22%.

The bank had a Troubled Asset Ratio (TAR) that was close to or below the national median from Dec 07 to Dec 09. Their non-performing loans grew in the last two quarters and the TAR spiked to 27.5 in Q2 2010 when compared to the national median of 15. Assets however grew Year-over-Year and the bank now has $13.42 billion in assets. Given the size of the purchase and the sharp decline in the stock price since the start of this year, I decided to initiate a position in BancorpSouth for my trading portfolio.

2. Ladenburg Thalmann Financial Services Inc. (LTS): $1.12

Shares of this national investment brokerage company were purchased by six insiders:

• Director Phillip Frost acquired 500,000 shares, paying $1 per share for a total amount of $500,000.
• Executive Vice President Mark Zeitchick acquired 50,000 shares, paying $1 per share for a total amount of $50,000.
• Director Richard Rosenstock acquired 50,000 shares, paying $1 per share for a total amount of $50,000.
• President & CEO Richard Lampen acquired 50,000 shares, paying $1 per share for a total amount of $50,000.
• Director Richard Krasno acquired 50,000 shares, paying $1 per share for a total amount of $50,000.
• Director Robert Eide acquired 25,000 shares, paying $1 per share for a total amount of $25,000.

The purchase price for all six insiders was exactly the same and this was explained through a footnote in the filings that stated “Following shareholder approval at the Ladenburg Thalmann Financial Services Inc. 2010 Annual Meeting, the securities were acquired on October 1, 2010 pursuant to a Stock Purchase Agreement dated as of May 28, 2010 between the reporting person and Ladenburg Thalmann Financial Services Inc”.

3. BGC Partners, Inc. (BGCP): $6.64

Chairman & CEO Howard Lutnick acquired 87,817 shares of this national investment brokerage company, paying $5.95 per share for a total amount of $522,511.

This is the second purchase by the CEO in the last two weeks. When we mentioned the prior purchase in the September 22 daily insider report I wrote,

“BGC Partners is a New York based brokerage firm that does a lot of business in over the counter derivatives like credit default swaps in addition to providing an electronic marketplace for government bonds and foreign exchange. The company has expanded its global reach through acquisitions and currently operates in a number of countries. Given the nature of their business, I would not put much faith in using book value to determine if it is a good investment or not. The company has a forward PE of 7.63 and multiple insiders have purchased stock since May. Given the complexity in understanding this business (if at all possible), I would pass on BGC Partners as a long-term investment but plan to initiate a position in my trading portfolio.”

4. Diamond Foods, Inc. (DMND): $41.27

Shares of this branded food company famous for its nuts were purchased by three insiders:

• Chairman, President & CEO Michael Mendes acquired 5,045 shares, paying $40.88 per share for a total amount of $206,244
• Chief Finance & Admin Officer Steven Neil acquired 1,000 shares, paying $40.57 per share for a total amount of $40,569
• SVP, General Counsel & HR acquired 250 shares, paying $41 per share for a total amount of $10,250

In the October 7 daily insider report I wrote,

“This was an interesting cluster purchase by insiders just a day after the stock took a hit on Wednesday. At one point Wednesday morning the stock was down more than 10% but recovered to close the day down 4%. Investors were not pleased with fiscal fourth quarter results even though net income of 30 cents was above expectations. Revenue was $176.6 million vs. $113.8 million last year but fell short of expectations of $189.6 million.

Growth has been strong and the company recently acquired Kettle Foods, the maker of Kettle chips (a personal favorite). The company increased its earnings forecast for fiscal 2011 ending on July 31, 2011. The stock has been on a tear the last few years and is actually trading at nearly twice its pre-recession 2007 levels. Valuation is not cheap and margins are low single digits as is typical with food businesses. The size of these purchases in relation to the market cap of the company and what these insiders earn in salary ($2.72 million for CEO Mendes) is not large.

I would be cautious about starting a position in this company and would watch for further purchases by these or new insiders. I plan on initiating a smaller than usual position in my trading portfolio.”

There was one additional purchase by the CEO the day following the Oct 7th daily insider update.

5. Comtech Telecommunications Corp. (CMTL): $29.64

Shares of this communication equipment company were purchased by four insiders:

• Chairman, CEO & President Fred Kornberg acquired 5,000 shares, paying $28.29 per share for a total amount of $141,450
• Director Robert Paul acquired 1,500 shares, paying $27.48 per share for a total amount of $41,220
• Sr. VP Strategy & Business Dev. Jerome Kapelus acquired 1,000 shares, paying $27.32 per share for a total amount of $27,320
• Sr. Vice President & CFO Michael Porcelain acquired 725 shares, paying $28.15 per share for a total amount of $20,409

6. MEMC Electronic Materials Inc. (WFR): $13.09

SVP & Chief HR Officer Scott Weisberg acquired 12,300 shares of this semiconductor and solar company, paying $12.11 per share for a total amount of $148,953.

We have mentioned MEMC multiple times in the past after a series of insiders started buying at the $9 level following Q2 results that failed to impress the street. The company’s Q3 results are due out on Oct 18 and RBC Capital upgraded the stock from Underperform to Sector Perform on October 05, 2010. I initiated a position in WFR for my trading portfolio on October 06, 2010 and sold 2/3rd of the position following a spike in the stock due to various factors including a favorable mention by Jim Cramer, the hiring of a former Managing Director of Deutsche Bank Securities as their Chief Strategy Officer and another analyst upgrade.

7. First Citizens Bancshares Inc. (FCNCA): $187.26

Executive Vice Chairman Frank Holding acquired 370 shares of this bank holding company paying $189.21 per share for a total amount of $70,009.

Notable Insider Sales:

1. Oracle Corp. (ORCL): $28

Shares of this enterprise software company were sold by four insiders:

• Chief Executive Officer Larry Ellison sold 4 million shares for $27.32 per share, generating a total amount of $109.28 million
• Executive Vice President – Ops Keith Block sold 501,010 shares for $27.61 per share, generating a total amount of $13.83 million
• Executive Vice President – Ops Charles Rozwat sold 250,000 shares for $27.5 per share, generating a total amount of $6.88 million
• EVP Guisquet le Loic sold 216,000 shares for $27.19 per share, generating a total amount of $5.87 million

The sales by Mr. Block, Mr. Rozwat and Mr. le Loic were as a result of exercising options immediately prior to the sale.

2. SandRidge Energy, Inc. (SD): $5.7

Chairman, President & CEO Tom Ward sold 6 million shares of this independent natural gas and oil company for $5.86 per share, generating a total amount of $35.16 million.

636,754 of these shares were sold indirectly through Solon L. Bloomer Family Partners Limited Partnership II.

3. FactSet Research Systems Inc. (FDS): $82.67

CEO & Chairman Philip Hadley sold 130,000 shares of this information and delivery services company for $82.33 per share, generating a total amount of $10.7 million.

4. Corrections Corporation of America (CXW): $25.83

Shares of this operator of correctional and detention facilities were sold by two insiders:

• Director Henri Wedell sold 274,386 shares at $24.84 per share, generating a total amount of $6.8 million
• Director John R Prann Jr sold 24,000 shares at $25 per share, generating a total amount of $600,026

Mr. Prann’s sales were as a result of options exercises. Chairman John Ferguson has been actively selling shares indirectly through a trust since February.

5. BMC Software Inc. (BMC): $42.2

Shares of this application software company were sold by four insiders:

• Senior Vice President James Grant Wendell Jr sold 73,387 shares at $40 per share, generating a total amount of $2.94 million
• Sr VP, CFO Stephen Solcher sold 27,500 shares at $41.04 per share, generating a total amount of $1.13 million
• Chairman, President & CEO Robert Beauchamp sold 25,834 shares at $41.04 per share, generating a total amount of $1.06 million
• Senior VP, Administration Hollie Sammons Castro sold 13,762 shares at $42.67 per share, generating $587,262

55,000 of the 73,387 shares Mr. Wendell sold were as a result of exercising options immediately prior to the sale. 17,500 of the 27,500 shares that CFO Solcher sold were as a result of exercising options. All of the shares sold by the CEO were as a result of exercising options.

Voluntary Disclosure: I hold long positions in BXS, DMND, CMTL and WFR in my trading portfolio.