Insider Weekends – June 15, 2012

Welcome to edition 106 of Insider Weekends. Insider buying decreased with insiders purchasing $35.9 million of their stock last week compared to $250.5 million in the week prior. Selling increased with insiders selling $1.8 billion worth of stock last week compared to $385.5 million in the week prior. A large part of the insider selling was related to a $1.16 billion sale of Kinder Morgan (KMI) by Goldman Sachs (GS).

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 49.5. In other words, insiders sold nearly 50 times the amount of stock as they purchased. Excluding the large Goldman sale, the insider sell/buy ratio would have dropped to 17.1. The Sell/Buy ratio this week compares unfavorably with the week prior when the ratio stood at 1.54. 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, 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. Tempur-Pedic International Inc. (TPX): $24.18

Director Andrews P. McLane acquired 112,000 shares of this mattress manufacturer, paying $25.02 per share for a total amount of $2.8 million. Mr. McLane increased his stake by 107.55% to 216,136 shares with this purchase. 12,000 of these shares were purchased indirectly by Mr. McLane’s spouse.

Tempur-Pedic’s stock has been in free fall over the last two months crashing from a high of over $87 in April to current levels. So what is behind this 73% drop in the stock price? The company forecast that it expects an 8% drop in sales and earnings of 36 cents per share in Q2 instead of the 86 cents that was expected by analysts.

Temput-Pedic came roaring out of the last recession with sales jumping from $831 million in 2009 to $1.42 billion in 2011. The stock was priced as a growth stock when the slowdown in sales was announced. However this reaction does seem excessive unless you believe we are going into another recession. Following this drop, the company is buying $200 million of its stock under an existing buyback plan and Tempur-Pedic also indicated last week that it has “been notified by certain executives of their intent to purchase company shares in the open market.”

This is the first insider purchase we have seen at the company over the last two years. The stock looks cheap when looking at trailing earnings and the interesting thing is that even the new lower sales forecast of $1.43 billion for 2012 represents a small increase when compared to last year. The key question to answer here is whether earnings for the second half of 2012 are going to remain as weak as the projected Q2 earnings.

You can view the list of recent insider transactions for Tempur Pedic International Inc. here.

2. Furiex Pharmaceuticals, Inc. (FURX): $20.23

Director Fredric N. Eshelman acquired 78,326 shares of this drug development collaboration company, paying $18.64 per share for a total amount of $1.5 million. Mr. Eshelman increased his stake by 3.03% to 2,666,361 shares with this purchase.

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

3. United Therapeutics Corporation (UTHR): $47.78

CEO Martine A. Rothblatt acquired 22,279 shares of this biotech company, paying $44.56 per share for a total amount of $992,710. These shares were purchased indirectly through various trusts.

Voluntary Disclosure: United Therapeutics was the subject of one of our weekly focus articles and I hold a long position in my personal portfolio.

You can view the list of recent insider transactions for United Therapeutics Corporation here.

4. Opko Health, Inc. (OPK): $4.57

CEO & Chairman Phillip Frost M.D. acquired 192,500 shares of this medical devices and drug development company, paying $4.72 per share for a total amount of $909,469. These shares were purchased indirectly by Frost Gamma Investments Trust.

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

5. Basic Energy Services, Inc. (BAS): $9.85

Director Steven A. Webster acquired 76,200 shares of this oil and gas services provider, paying $9.49 per share for a total amount of $723,472. Mr. Webster increased his stake by 9.95% to 842,270 shares with this purchase.

You can view the list of recent insider transactions for Basic Energy Services, Inc. here.

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

Notable Insider Sales:

1. Copart, Inc. (CPRT): $23.3

Chairman of the Board Willis J. Johnson sold 764,456 shares of this online auctions and vehicle remarketing services provider for $24.33, generating $18.6 million from the sale. These shares were sold indirectly through a trust.

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

2. Monster Beverage Corporation (MNST): $78.64

Shares of this beverages company were sold by 2 insiders:

• Chairman and CEO Rodney C. Sacks sold 150,000 shares for $75.29, generating $11.3 million from the sale. These shares were sold indirectly by Hilrod Holdings, L.P.
• Senior VP – Monster Energy Co. Thomas J. Kelly sold 16,324 shares for $76.04, generating $1.2 million 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 Monster Beverage Corporation here.

3. Illinois Tool Works Inc. (ITW): $54.48

Shares of this diversified machinery company were sold by 2 insiders:

• Director David Byron Smith Jr. sold 200,000 shares for $54.68, generating $10.9 million from the sale. These shares were sold indirectly by the Smith Family LP.
• Senior VP Human Resources Sharon M. Brady sold 10,697 shares for $55.50, generating $593,684 from the sale.

You can view the list of recent insider transactions for Illinois Tool Works Inc. here.

4. Crown Castle International Corp. (CCI): $57.75

Shares of this wireless infrastructure provider were sold by 3 insiders:

• Director John P. Kelly sold 85,000 shares for $56.55, generating $4.8 million from the sale.
• SVP & Chief Commercial Officer Patrick Slowey sold 27,411 shares for $57.22, generating $1.6 million from the sale.
• Director Ari Q. Fitzgerald sold 25,000 shares for $55.72, generating $1.4 million from the sale. These shares were sold as a result of exercising options immediately prior to the sale.

I am yet to figure out the bull case for Crown Castle at these levels. The company is richly valued, has $7.6 billion in net debt on the balance sheet and insiders have been consistently selling the stock.

You can view the list of recent insider transactions for Crown Castle International Corp. here.

5. Liquidity Services, Inc. (LQDT): $56.41

Shares of this online auction company were sold by 2 insiders:

• Chairman of the Board and CEO William P. Angrick III sold 70,300 shares for $64.09, generating $4.5 million from the sale. These shares were sold indirectly through a trust.
• Director Patrick W. Gross sold 10,625 shares for $62.66, generating $665,762 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 Liquidity Services, Inc. here.

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