Today’s important activity
4 microcaps with CFO purchases in the last week (Seeking Alpha)
Insider buying vs. S&P500 (In Search of Alpha)
Insider selling and options trading may spell bad things for Protalix, $PLX (Seeking Alpha)
2 stocks seeing insider buying despite bearish crossovers (Seeking Alpha)
Who’s right: analysts ramp earnings estimates as management gets bearish (Zero Hedge)
Read more recent insider transactions
Read more about insider transactions and how investors can profit
Wealthy investor Kevin Douglas bought $8.5M worth of American Superconductor ($AMSC) and now owns close to 14% of the firm. (WSJ)
Lots of buying over the last 3 months by multiple insiders in International Speedway Corp, $ISCA (J3SG)
I’ve written (in Tradestream the book and on this blog) about the abnormal returns of corporate insiders. Investors following insider moves by following corporate managers’ regulatory filings can capture some of this return. Read more about my Insider Trading Dashboard.
Essentially, given their stature within their firms and their own profit motives, insider transactions provide relatively accurate signals as to where management sees their stock prices moving. This strategy is predicated on mimicking insider trading moves that insiders do publicly.
But what if insiders are selling off their stock ownership by hedging their holdings less publicly (in forms 3, 4, and 5 and mostly in footnotes)?
Bettis, Bizjak, and Kalpathy recently published a study on insiders hedging their stock ownership. In Why Do Insiders Hedge their Ownership? An Empirical Examination, the researchers describe 4 common techniques that insiders use to hedge their holdings and future stock price results depend upon which vehicle chosen:
- equity swaps (or total return equity swaps: insiders exchange future returns on their stock for the cash flows of another financial instrument
- zero-cost collars: involves a simultaneous purchase of a put and sale of a call
- forwards: combines a forward sale of the insider’s stock to another institution, depending upon the value of the stock at a future date
- exchange funds: a group of insiders place their shares in a limited partnership or LLC. By contributing their shares into a diversified portfolio, insiders can diversify their holdings.
Intuitively, the researchers typically found a significant price run-up before these hedging transactions. Stock performance varied depending upon which hedge was used:
- exchange funds: stock price continued to climb
- collars and forwards: saw a reversal in firm performance after the hedge was put on
The big takeaway here for investors is that after a significant appreciation in a heavily management-owned stock, certain hedges can signal opportunistic trading, even if no stock is formally sold.
Why do insiders hedge their ownership? An empirical examination (Bettis, Bizjak and Kalpathy), November 2010
Universal Travel Group ($UTA): A not-so undiscovered china small cap gem (Seeking Alpha): A lot of insider buying (management and shareholders) at Chinese online travel firm, $UTA
Multiple insiders buying in $ASRV, largish insider nipping at $CIX, and insiders offloading by the boatloads names like $K and $HOLL. (J3SG)
TheStreet.com has a list of stocks with significant insider buying and/or selling. Included: $TIE, $LEX, $PNC, and $BBY saw insider purchasing while $GOOG, $MCK, $QCOM, $F, and $HPQ saw insiders unloading stock. (TheStreet.com)
List of insider buys from Bloggingstocks includes: $LGF, $MAYS, $PZG, and $GAM. (BloggingStocks)
$OPK continues to see insider buying, as does $UMH, $BPAX, and $FFBC (JS3G)
On a macro level, for the week ending January 14, 2011, no insider buying activity was recorded. Whoa. (zero hedge)
Lots of multiple, ongoing insider buying going on at International Speedway Corp, $ISCA, and York Water, $YORW, and at CNB Corp ($CNBW) as well, with a singular large sale at Unit Corp, $UNT. (J3SG)
More on the imbalanced selling going on in the market in general and at $AMZN, $HPQ, $ATHR, and $QCOM in particular. (24/7 Wall St)
$LWSN, $TOL, $HAIN, and $MA all passing the insider trading screen at TheStreet.com (TheStreet.com)
114 times more insider selling than buying in first week of 2011 (Zero Hedge)
5 Dogs of the Dow worth betting on (Seeking Alpha): This one highlights insider buying at $INTC and $VZ
A Safety Dance for 4 Buy/Writes in January (Seeking Alpha): $WFR features prominently.
Value Play (Benzinga): $CA passes a screen that includes recent insider buying.
Stock with the largest increase in institutional buying from 13F holdings (Whale Wisdom): The winner? Kinross Gold, $KGC
Two good articles over on the Motley Fool:
- high momentum stock seeing significant insider buying.
- “To compile the list, we created a universe of 140 stocks that have seen strong gains over the last quarter. Additionally, all of these companies have had positive earnings and sales growth over the last five years. We then narrowed down the list by only focusing on those stocks that have seen insider buying over the last three months.”
- income stocks being bought up by insiders
- “It’s fair to assume that a firm’s management has a lot more access to intel than we do — so if they’re snapping up company stock, it’s a pretty good sign of things to come.”
Both these articles were written by Kapitall. Check out their tools and the company is fresh off a significant funding round.
Interesting article about CFO and CTO selling at First Solar ($FSLR)
Insider Trading Strategy
CXO Advisory has a great piece on the evolving informativeness of insider trading (sub required) from a paper entitled “Has the Informativeness of Insider Filing Changed Post Sox? Has the Latest Credit Crunch Improved this Informativeness?” (Ashrafee Hossain).
Evidence indicates that implementation of the Sarbanes-Oxley Act and the credit crisis have both enhanced the informativeness of insider trading data as reported via SEC Form 4.