Insider stock purchases are often viewed as indicators of an undervalued stock. Insider sales are sometimes seen as a sign of an overvalued stock (though they are often more difficult to decipher than purchases). The reasoning for these views is pretty simple: insiders should know the most about their companies; so if they are buying or selling, others should consider following their lead. Of course, this doesn’t always work out as well as investors hope, but insider buying and selling can be a valuable tool in identifying potential investments or as a way to tip the balance when already considering purchasing or selling a company’s shares.
With this in mind, Value Line runs a regular screen of insider buying and selling in the back of the Selection & Opinion section of The Value Line Investment Survey. This time around, the screen turned up only one interesting name on the insider buying front, MEMC Electronic Materials (WFR), but several on the insider sales end, including Google (GOOG), Ford (F), and Core Laboratories (CLB).
MEMC Electronic Materials
MEMC Electronic Materials, Inc. engages in the design, manufacture, and sale of electronic-grade wafers for the semiconductor industry. The company offers a prime polished wafer, which is a refined pure wafer with an ultraflat and ultraclean surface; an epitaxial wafer that consists of a thin silicon layer grown on the polished surface of the wafer; and a test/monitor wafer for use in testing semiconductor fabrication lines and processes. Foreign business accounted for about 87% of 2009 sales, with research and development making up 3.5% of sales.
Investors showed their disappointment in the company’s second-quarter results by selling the electronic-grade wafer manufacturer’s shares following the release. In the term, MEMC registered share net of $0.02 (excluding one-time items), a penny decline from the year-ago tally and well below our $0.10 estimate. The company continues to face heightened margin pressure.
Looking ahead, MEMC did provide some optimism, indicating that full-year sales would surpass its previous guidance range of $1.75 billion to $1.85 billion. The company, however, now believes earnings per share will fall short of its earlier $0.70-$0.80 guidance. Despite these recent negatives, the CEO and COO together bought some 100,000 shares in early August (shortly after the earnings release). This suggests that they believe the current stock price is low relative to the long-term value of the company.
Google Inc. operates the world's leading Internet search engine. The company primarily derives revenues through delivering targeted advertising. Revenues are also derived from the licensing of search technology and solutions to enterprises. Forty seven percent of revenues in 2009 were derived from the United States and 53% were from foreign markets. The company has over 19,000 employees.
Of those employees, two founded the company. Interestingly, the founders recently sold 83,334 shares each. The fact that both sold the exact same number of shares at about the same time suggests that it was likely an option or restricted stock event. Company founders selling such shares and not keeping them, however, could be a concern for some investors. That said, Google posted strong results for the second quarter and appears well positioned in its markets. Still, such sales can cause trepidation.
Ford
Ford Motor Company is the second-largest domestic automobile manufacturer with sales representing approximately 15% of all U.S. car and truck sales in 2009. It also engages in vehicle leasing and rental, and the manufacturing of electronic equipment. The company’s Financial Services Group includes Ford Motor Credit and U.S. Leasing. Foreign operations accounted for about 52% of 2009 sales. The company has about 198,000 employees.
The Ford family, officers, and directors own 1.5% of the company’s common stock, and have 40% of the voting power (4/10 Proxy). That said, William Ford Jr., the Chairman of the Board, just sold 1,755,000 shares, leaving him with a remaining stake of 2.45 million shares. Although the company continues to shore up its finances and Ford stock remains an interesting play on the auto market’s recovery, the large stock sale by the Chairman (a Ford family member) is concerning.
Core Laboratories
Core Laboratories, N.V. is a leading oilfield services provider with 70 offices in over 50 countries. It operates in three segments: Reservoir Description (60% of 2009 revenue, 57% of operating income), Production Enhancement (33%, 35%), and Reservoir Management (7%, 8%). Revenue in 2009 was 80% from the sale of services and 20% from product sales. Sales outside the United States accounted for 51% of the total last year.
Core Laboratories' production enhancement segment has been a star performer of late, benefiting from increased North American natural gas drilling. Returns from the reservoir description business, however, have been disappointing. This segment, the company's largest, experienced a moderate drop in operating income during the June quarter that left Wall Street disenchanted, judging by the shares' modest selloff on the news. Although we believe Core Labs is in good shape for the long haul, provided oil and gas demand advances steadily, but that didn’t stop the CEO and COO from selling a combined 180,562 shares. Although both of these top employees continue to have material positions in the company, percentage wise this was a large sale for each. These sales could suggest the two insiders have a near-term concern about the valuation of the company.
At the time of this article's writing, the author did not have positions in any of the companies mentioned.
