Insider Weekends – April 22, 2011

Welcome to edition forty six of Insider Weekends. Insider buying dropped with insiders purchasing $23.45 million of their stock last week when compared to $151.3 million in the week prior, which included a $125 million purchase related to a secondary offering by Jefferies. Selling increased with insiders selling $843.34 million worth of stock when compared to $822.65 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 purchases that week. The adjusted ratio for last week jumped up to 35.96. In other words, insiders sold more nearly 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 5.44. 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. JPMorgan Chase & Co. (JPM): $44.68

Director Lee R. Raymond acquired 2,000 shares of this investment bank, paying $1,106.25 per share for a total amount of $2.21 million. As indicated in the filing these were fixed-to-floating rate non-cumulative preferred shares.

Two insiders including a director and the chief risk officer have purchased shares over the last six months. Several insiders have also exercised options without turning around and selling them immediately. Two insiders sold stock but one of them was an options related sale as you can see from this page.

2. Compass Diversified Holdings (CODI): $15.34

Shares of this public investment firm were acquired by four insiders:

• Director Gordon Burns acquired 54,495 shares, paying $14.86 per share for a total amount of $809,895. This was an indirect purchase through an IRA and a trust account. Mr Burns increase his stake by 52.19% to 49,280 shares with this purchase
• Chairman of the Board Sean C. Day acquired 30,000 shares, paying $15.29 for a total amount of $458,700. Half of these shares were acquired directly and the other half through a trust.
• Director Eugene D. Ewing acquired 298 shares, paying $15.01 per share for a total amount of $4,473. Mr Ewing increased his stake by 82.44% to 25,472 shares with this purchase.
• Director Mark H. Lazarus acquired 220 shares, paying $15.01 per share for a total amount of $3,302. Mr Lazarus increased his stake by 65.02% to 9,439 shares with this purchase.

While Compass is not a Business Development Company, it pays a dividend that is comparable to that of BDCs with a yield of 9.5%. Compass prefers to take a controlling stake in the companies it invests in. One of its portfolio companies, staffing services giant Staffmark, has filed for a $125 million IPO and this event could be a catalyst to unlock value in Compass as it owns 76.2% of Staffmark. Several insiders have been buying the stock since last August.

Voluntary Disclosure: I have a long position in CODI.

You can view the list of recent insider transactions for Compass Diversified Holdings here.

3. MGIC Investment Corp. (MTG): $8.07

Shares of this home mortgage insurance company were acquired by 3 insiders:

• Chairman and CEO Curt S. Culver acquired 80,000 shares, paying $7.76 per share for a total amount of $620,552. Mr. Culver increased his stake by 7.05% to 1,214,359 shares with this purchase.
• President and COO Patrick Sinks acquired 25,000 shares, paying $7.70 per share for a total amount of $192,500. Mr. Sinks increased his stake by 4.14% to 628,484 shares with this purchase.
• Executive VP & CFO Jon Michael Lauer acquired 20,000 shares, paying $7.70 per share for a total amount of $153,998. Mr. Lauer increased his stake by 3.82% to 543,821 shares with this purchase.

MGIC Investment saw its stock drop by more than 11% on Wednesday after the company reported a wider than expected loss for its fiscal first quarter. The stock however regained most of that lost ground with a gain of more than 8% on Thursday with part of that gain triggered by these insider purchases.

Multiple insider purchases after an earnings related drop in stock price has usually been a good indicator and we have participated in the subsequent rebound for companies like LSI Corporation (LSI) and MEMC Electronic Materials (WFR). However I am less enthused about MGIC as the company has posted losses in 14 out of the last 15 quarters and has also indicated that it might see insurance claim costs increase in the future.

On the positive side if the government reduces the role of the Federal Housing Administration (FHA) in providing affordable down payments to first time buyers, mortgage insurers like MGIC, Radian Group and California based PMI Group could see their market share expand.

You can view the list of recent insider transactions for MGIC Investment Corp. here.

4. Mistras Group, Inc. (MG): $18.25

Director James J. Forese acquired 25,000 shares of this testing and software solutions provider, paying $17.73 per share for a total amount of $443,125. Mr. Forese increased his stake by 100% to 50,000 shares with this purchase.

You can view the list of recent insider transactions for Mistras Group, Inc. here.

5. Valhi, Inc. (VHI): $31

Chairman of the Board Harold C. Simmons acquired 11,909 shares of this chemicals and components products company, paying $30.21 per share for a total amount of $359,712. These shares were acquired indirectly through Kronos Worldwide Inc. Mr. Simmons is also the Chairman of Kronos Worldwide.

You can view the list of recent insider transactions for Valhi, Inc. here.

You can view the full list of purchases from this Insider Buying page.

Notable Insider Sales:

1. Discovery Communications, Inc. (DISCA): $41.37

Director John C. Malone sold 321,544 shares of this media and entertainment company for $41.27, generating $13.27 million from the sale. These shares were sold indirectly by a Trust.

You can view the list of recent insider transactions for Discovery Communications, Inc. here.

2. Leucadia National Corp. (LUK): $37.27

President Joseph S. Steinberg sold 250,000 shares of this holding company for $35.00, generating $8.75 million from the sale.

You can view the list of recent insider transactions for Leucadia National Corp. here.

3. Acme Packet, Inc. (APKT): $77.03

Shares of this network communication equipment company were sold by 3 insiders:

• President and CEO Andrew D. Ory sold 70,000 shares for $70.21, generating $4.91 million from the sale.
• Chief Technology Officer Patrick J. Melampy sold 40,000 shares for $70.42, generating $2.81 million from the sale.
• VP Sales & Business Development Dino Dipalma sold 9,500 shares for $72.12, generating $685,145 from the sale.

You can view the list of recent insider transactions for Acme Packet, Inc. here.

4. Apollo Group Inc. (APOL): $39.8

Shares of this for-profit education company were sold by 2 insiders:

• Executive Chairman of the Board John G. Sperling sold 100,000 shares for $39.58, generating $3.96 million from the sale. These shares were sold indirectly through a trust.
• Vice Chairman of the Board Peter V. Sperling sold 100,000 shares for $39.63, generating $3.96 million from the sale.

You can view the list of recent insider transactions for Apollo Group Inc. here.

5. Smithfield Foods Inc. (SFD): $23.31

Director Wendell H. Murphy sold 340,000 shares of this meat products company for $23.26, generating $7.91 million from the sale.

Mr. Murphy also sold shares last week and following these sales he sold all his common stock in the company except for 4,000 shares held by his spouse.

You can view the list of recent insider transactions for Smithfield Foods Inc. here.

You can view the full list of sales from this Insider Sales page.