Insider Weekends – June 17, 2011

Welcome to edition fifty four of Insider Weekends. Insider buying decreased with insiders purchasing $43.2 million of their stock last week when compared to $90.03 million in the week prior. Selling on the other hand increased with insiders selling $1.13 billion worth of stock compared to $582.9 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 went up to 26.12. In other words, insiders sold more than 26 times as much stock as they purchased. The Sell/Buy ratio this week compares unfavorably with the week prior when the ratio stood at 6.47. 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. Scientific Games Corporation (SGMS): $9.28

Director Ronald O. Perelman acquired 1,000,000 shares of this casino and lottery equipment provider, paying $9.04 per share for a total amount of

$9.04 million. These shares were purchased indirectly by MacAndrews & Forbes Holdings of which Mr Perelman is the sole stockholder.

Mr. Perelman also picked up 4.315 million shares last December at prices ranging from $8.39 to $9.75. Several other insiders including the CFO also purchased shares last December and there have only been two insider sales as you can see from this page.

We wrote the following on December 7, 2010,

“Scientific Games stands out for a couple of reasons. The cluster purchase by a number of insiders and the size of these purchase. With this purchase Mr. Perelman picked up nearly 4% of the total outstanding stock and now owns almost 32% of the company. At first I thought this purchase was probably part of a secondary offering or debt conversion but there was nothing in the filing to indicate this was anything other than a regular purchase. Moreover the company has enough cash on the balance sheet to meet short-term liquidity needs.

The stock saw a nice 20% spike on Nov 30 after the former CEO who served from 1992 to 2008 was brought back in to run the company. These filings came in after hours yesterday and the action on this stock is going to be very interesting to watch today. The company reported a net loss of $40 million in 2009 but given its high non-cash depreciation expenses, operating cash flow in 2009 was actually $220 million, the highest in three years.

A word of caution. While insiders appear to be seeing a golden future ahead, both revenue and earnings have been declining and interest on the $1.34 billion in debt is wiping out most of the operating earnings. While CapEx appears to be unusually low, other investments and expenditures on things like software are putting a major dent into free cash flow generated by the company.”

The first quarter of 2011 was no different with the company posting a decline in revenue on a sequential quarter basis but still managing to generate almost $47 million in free cash flow.

You can view the list of recent insider transactions for Scientific Games Corporation here.

2. CTC Media, Inc (CTCM): $20.05

Co-Chairman Peter Aven acquired 150,600 shares of this broadcasting company, paying $19.86 per share for a total amount of $2.99 million.

This Moscow based TV broadcasting company sports a dividend yield of 6.5% with a payout ratio of 67%. While the payout ratio appears to be sustainable, the dividend yield is higher than normal and anything over 4% raises a red flag for me if the company is not a REIT, MLP or BDC.

The company has no debt on its balance sheet and its operating margin of 38% is very high.

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

3. Valhi, Inc. (VHI): $42.6

Chairman of the Board Harold C. Simmons acquired 54,716 shares of this chemicals and components products company, paying $43.65 per share for a total amount of $2.4 million. 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.

4. Overseas Shipholding Group Inc. (OSG): $27.83

Director Oudi Recanati acquired 72,174 shares of this shipping tanker company, paying $26.15 per share for a total amount of $1.9 million. Mr. Recanati increased his stake by 9.89% to 801,710 shares with this purchase.

We have seen four insiders purchase shares of Overseas Shipping Group over the last two weeks with Mr. Recanati’s purchases accounting for the bulk of these purchases. He has acquired 210,298 shares for a total purchase price of $5.39 million since the start of this month.

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

5. Delphi Financial Group, Inc. (DFG): $27.54

Chairman & CEO Robert Rosenkranz acquired 50,000 shares of this life and workers compensation insurance company, paying $27.14 per share for a total amount of $1.4 million. These shares were  purchases indirectly through a corporation. An affiliate of Mr. Rosenkranz has discretionary authority over the assets of this corporation.

Delphi trades just below tangible book value and sports a dividend yield of 1.8%.

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

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

Notable Insider Sales:

1. Avalonbay Communities Inc. (AVB): $129.08

Shares of this apartment REIT were sold by 4 insiders:

• CEO Bryce Blair sold 165,050 shares for $130.26, generating $21.5 million from the sale. These shares were sold as a result of exercising options immediately prior to the sale.
• CFO Thomas J. Sargeant sold 15,000 shares for $132.35, generating $1.99 million from the sale.
• Senior Vice President James Richard Morris sold 5,794 shares for $132.39, generating $767,068 from the sale. These shares were sold as a result of exercising options immediately prior to the sale.
• President Timothy J. Naughton sold 1,245 shares for $132.00, generating $164,340 from the sale. These shares were sold as a result of exercising options immediately prior to the sale.

We wrote about AvalonBay in our first special report here.

You can view the list of recent insider transactions for Avalonbay Communities Inc. here.

2. Warner Music Group Corp. (WMG): $8.19

Shares of this music records company were sold by 2 insiders:

• Chairman & CEO Edgar Jr Bronfman sold 1,033,353 shares for $8.18, generating $8.45 million from the sale. These shares were sold indirectly by a trust.
• CEO, Rec Music – North Am Lyor Cohen sold 871,102 shares for $8.19, generating $7.13 million from the sale.

You can view the list of recent insider transactions for Warner Music Group Corp. here.

3. Travelzoo Inc. (TZOO): $55.98

Director Ralph Bartel sold 131,161 shares of this internet travel and entertainment company for $59.34, generating $7.8 million from the sale. These shares were sold indirectly by a trust.

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

4. Acme Packet, Inc. (APKT): $62.59

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

• President and CEO Andrew D. Ory sold 90,000 shares for $62.24, generating $5.6 million from the sale.
• VP Sales & Business Develop Dino Dipalma sold 19,500 shares for $64.32, generating $1.3 million from the sale. These shares were sold as a result of exercising options immediately prior to the sale.
• VP Marketing & Prod Mgmt James J. Hourihan sold 9,500 shares for $66.75, generating $634,126 from the sale. These shares were sold as a result of exercising options immediately prior to the sale.

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

5. The Washington Post Company (WPO): $418.98

Shares of this diversified education and media company were sold by 2 insiders:

• CEO and COB Donald Graham sold 12,613 shares for $421.57, generating $5.3 million from the sale. These shares were sold indirectly by a trust set up for the siblings of Mr. Graham.
• Director Katharine Weymouth sold 104 shares for $419.21, generating $43,598 from the sale.

You can view the list of recent insider transactions for The Washington Post Company here.

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