4 Significant Insider Transactions That You Should Note

Brian is a member of The Motley Fool Blog Network -- entries represent the personal opinion of the blogger and are not formally edited.

Courtesy of Insider Insights, I have compiled a list of significant insider/institutional purchases and sales that have been filed with the SEC over the last week--but does this activity indicate that you should buy or sell?

Before we look at the most significant activity from the last week, keep in mind that most, but not all, took place in the open market. The filer, or person/firm that is buying or selling, is not necessarily a director, but can also be institutions or other beneficial owners; those with large stakes. With that said, let’s look at the most significant transactions from last week.

Company

Filer Name

Bought or Sold

Shares

Dollar Amount (rounded)

Valeant Pharmaceuticals (NYSE: VRX)

Morfit G Mason

Bought

1,352,941

$115 million

Summit Midstream (NASDAQ: SMPL)

Summit Midstream

Bought

3,107,698

$98 million

Google (NASDAQ: GOOG)

Eric Schmidt

Sold

76,428

$66 million

TD Ameritrade (NYSE: AMTD)

Joe Ricketts

Sold

2,411,397

$58 million

Large Debt Overlooked For Growth

Even after a 92% gain over the last year, director Mason Morfit believes that Valeant is still worth buying. Since buying the eye drug company Bausch & Lomb for $8.7 billion, Valeant has seen several upgrades from the likes of Jefferies, CRT Capital, and Goldman Sachs.

This is a company that has hit the debt and bond markets particularly hard over the last few years to fund high-profile acquisitions. With that said, the company is growing at about 40% year-over-year, has a large and diversified pipeline, and has solidified itself as an all-around diversified biopharmaceutical company.

Personally, I’d like to see the company grow internally through R&D rather than paying expensive premiums for its competitors, but Morfit begs to differ.

Firing On All Cylinders

Summit Midstream is an energy company that is rarely discussed, but has very quietly produced gains of 60% over the last year. This is a very efficient company, one with operating margins of 34%, that is also seeing top-line growth of more than 20% year-over-year.

In addition, an investment in the stock pays a forward dividend yield of nearly 5%. Therefore, it should serve as no surprise that Summit Midstream is betting big on this company.

The Trend Of Continuous Selling Continues

Considering that Google has a market cap of nearly $300 billion, a $66 million insider sale is fairly small. However, the 2.7 million shares that have been sold over the last six months is significant.

This is a company that has a lot of momentum in its favor, and a lot of new exciting gadgets such as Google Glass and self-driving cars. The search engine leader, and Android operator, is growing at 25% year-over-year, and is trading at 26 times earnings.

Perhaps insiders believe its premium to the market is a bit pricey? Or, maybe these insiders are simply rewarding themselves after years of great performance? Who knows--but at this point, insiders are selling Google, and retail investors continue to buy.

Low Expectations & Large Gains Spark Selling

Much like Google, TD Ameritrade has seen its insiders sell with authority over the last six months, and Ricketts is just one more example. The stock has seen its valuation rise 43% over the last year, as the company has beat the low earnings expectations set forth by Wall Street.

The problem is that activity for the online brokerage continues to decline, and its commissions and transaction fees has seen very little improvements. Thus, with gains being created from weak fundamental performance, it is quite easy to see why insiders might be selling.

Final Thoughts

In my book Taking Charge With Value Investing (McGraw-Hill, 2013), I list insider and institutional activity as the single most important measure outside of fundamental performance for assessing an investment. The reason: insiders know more than you, and unless there is a planned program set in place, no logical person would sell a large number of shares just prior to a large takeover or before some other great unknown catalyst.

I like to use insider activity as an indication of the unknowns, because after all, we can assess SEC filings all day, but it does not tell us with certainty what may be lurking around the corner. My personal theory is that actions speak louder than words, and while all CEOs and directors tout all the positives for their company, activity may be more telling. Thus, use these actions to your benefit, and incorporate them as an additional tool in your shed.

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Brian Nichols has no position in any stocks mentioned. The Motley Fool recommends Google and TD Ameritrade. The Motley Fool owns shares of Google. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. Is this post wrong? Click here. Think you can do better? Join us and write your own!

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