Insider Weekends – May 18, 2012

Welcome to edition 102 of Insider Weekends. Insider buying increased with insiders purchasing $148.9 million of their stock last week compared to $83.2 million in the week prior. Selling also increased with insiders selling $1.3 billion worth of stock last week compared to $844.3 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 dropped down to 8.8. In other words, insiders sold nearly 9 times as much stock as they purchased. The Sell/Buy ratio this week compares favorably with the week prior when the ratio stood at 10.2. 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.

Insider buying has rebounded significantly and the Insider Sell/Buy ratio went from a peak of 174.2 to just 8.8 over a three week period. We wrote the following three weeks ago,

“The adjusted ratio for last week shot up to 174.2. In other words, insiders sold more than 174 times as much stock as they purchased. The Sell/Buy ratio this week compares unfavorably with the week prior when the ratio stood at 25.1. Part of this big jump has to do with Bill Gates selling $385.4 million worth of Microsoft stock to most likely fund his foundation buy even excluding that sale, the ratio would have been 125.5.

Interestingly the last time the ratio was this high was almost a year ago on April 29, 2011 when the ratio spiked to 186.8. The S&P 500 dropped for six consecutive weeks from 1363.61 to 1270.98 following that spike.”

The market has declined 7.7% over the last three weeks and it remains to be seen “if sell in May and go away” is going to work for a third year in a row.

Note: As mentioned in the first post in this series, 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. Kratos Defense & Security Solutions, Inc. (KTOS): $5.21

Shares of this security & protection services provider were acquired by 3 insiders:

• Director Bandel L. Carano acquired 11,000,000 shares, paying $5.00 per share for a total amount of $55 million. These shares were purchased indirectly through funds and as part of a stock offering by the company.
• President & CEO Eric M. Demarco acquired 49,252 shares, paying $5.08 per share for a total amount of $249,999. Mr. Demarco increased his stake by 99.12% to 98,940 shares with this purchase.
• Executive VP & CFO Deanna H. Lund acquired 10,000 shares, paying $4.99 per share for a total amount of $49,900. Mr. Lund increased his stake by 58.69% to 27,038 shares with this purchase.

You can view the list of recent insider transactions for Kratos Defense & Security Solutions, Inc. here.

2. Netflix, Inc. (NFLX): $69.96

Director Jay C. Hoag acquired 143,400 shares of Netflix, paying $73.06 per share for a total amount of $10.5 million. These shares were purchased indirectly through Technology Crossover Ventures.

Following Mr. Hoag’s purchase last week we wrote the following,

“Mr. Hoag is the founding member of venture capital firm Technology Crossover Partners, which manages $3.3 billion in assets. He has served as a director of Netflix since 1999 and has been a technology investor for over 29 years.”

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

3. Halozyme Therapeutics, Inc. (HALO): $7.9

Director Randal J. Kirk acquired 1,071,498 shares of this biotech company, paying $7.42 per share for a total amount of $7.95 million. These shares were purchased indirectly by Kapital Joe, LLC.

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

4. Continental Resources, Inc. (CLR): $71.31

CEO & Chairman Harold Hamm acquired 100,000 shares of this producer of crude oil and natural gas, paying $71.68 per share for a total amount of $7.2 million. Mr. Hamm increased his stake by 0.08% to 123,259,048 shares with this purchase.

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

5. Lime Energy Co. (LIME): $2.41

Director Richard P. Kiphart acquired 1,000,000 shares of this energy efficiency solutions provider, paying $2.55 per share for a total amount of $2.6 million. Mr. Kiphart increased his stake by 10.38% to 10,637,170 shares with this purchase.

This was not an open market purchase but a direct sale by the company to Mr. Kiphart. The funds raised will be used for general corporate purposes. The company has managed to post double digit revenue growth over the last three years and also managed to eke out a small amount of free cash flow in Q4 2011 but for the most part the company has been posting losses. The stock took a dive following Q1 results when it reported a wider than expected loss and revenue declined year-over-year in what is considered a seasonally slow quarter.

The company signed four new multi-year contracts with utilities in the first quarter and currently has a backlog of $224 million (2011 annual revenue was $120 million). While things look bleak now, the company appears to be headed in the right direction and it would be worth keeping the Lime Energy on your radar in case the company manages to achieve sufficient scale to become consistently profitable. Given that this is a potential turnaround story, there is always the risk that Lime may end up turning into a lemon for investors.

You can view the list of recent insider transactions for Lime Energy Co. here.

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

Notable Insider Sales:

1. Public Storage (PSA): $130.51

Chairman Emeritus Wayne B. Hughes sold 176,672 shares of this REIT for $138.9, generating $24.5 million from the sale. These shares were sold indirectly through a trust.

You can view the list of recent insider transactions for Public Storage here.

2. NVR Inc. (NVR): $765.71

Shares of this construction company were sold by 3 insiders:

• Director Manuel H. Johnson sold 10,000 shares for $820.58, generating $8.2 million from the sale.
• Chief Executive Officer Paul C. Saville sold 6,900 shares for $832.30, generating $5.7 million from the sale.
• Chief Financial Officer Dennis M. Seremet sold 4,472 shares for $815.91, generating $3.6 million from the sale.

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

3. magicJack VocalTec Ltd. (CALL): $17.74

Chief Executive Officer Daniel Borislow sold 958,464 shares of this voice-over-IP telecommunication services provider for $14.97, generating $14.3 million from the sale.

You can view the list of recent insider transactions for magicJack VocalTec Ltd. here.

4. priceline.com Incorporated (PCLN): $632.004

Shares of this online travel company were sold by 3 insiders:

• Director Nancy B. Peretsman sold 7,000 shares for $671.20, generating $4.7 million from the sale.
• President and CEO Jeffery H. Boyd sold 2,000 shares for $666.28, generating $1.3 million from the sale.
• Head Worldwide Strategy & Planning Glenn D. Fogel sold 1,000 shares for $669.07, generating $669,068 from the sale.

You can view the list of recent insider transactions for priceline.com Incorporated here.

5. F5 Networks, Inc. (FFIV): $112.712

President and CEO John McAdam sold 50,000 shares of this networking company for $124.93, generating $6.2 million from the sale.

You can view the list of recent insider transactions for F5 Networks, Inc. here.

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