Insider Dumping Shares For What Reason
Edgar is a member of The Motley Fool Blog Network -- entries represent the personal opinion of the blogger and are not formally edited.
If the economic data and strong sales results from retailers are so upbeat, it does not make sense why Dow Jones cannot penetrate 13,000 and begin making higher highs. In any case, robust unemployment data and the decrease of jobless claims should keep the bears away in the short term. What I do constantly look for in companies is a sign of strength and that sign of strength sometimes is shown when insiders begin to accumulate shares. Unfortunately, this article will concentrate on companies that insiders are beginning to lose hope or turn bearish for the time being. No one can truly comprehend why insiders dump large blocs of shares into the market; it could be price overappreciation or simply a need for cash. However, very large incremental sales do often signal a stock price retracement in certain scenarios. Here are a few stocks that insiders have been eager to sell while the market has been see-sawing all over the place.
On February 24th, SVP Jerry Wilson Sr. dumped nearly 76,000 shares of Coca-Cola (NYSE: KO) for a total proceed of $5,228,600. Besides the risk seen in adverse foreign currency movement or unfavorable weather conditions that can negatively affect this multinational, it is difficult to gauge why such a large block was sold off. The company is still a low beta stock with A+ S&P credit rating and has a dominant market share position around the world with strong balance sheet and cash flow. In 2011 the world's largest soft drink company saw its sales rise over 32% from its North American operations due to higher prices, international volume growth and positive foreign exchange rates. This year company is expecting 4% sales growth with single-digit increase in carbonated volume and high single-digit increase rates for non-carbonated volumes. In my humble opinion, the termination of its bottling operations in Norway and Sweden is unfavorable, seeing that the reduction in international exposure could hurt the company's image in those regions. Currently the stock is a bit overvalued, trading nearly 10% over its S&P's fair value quantitative model calculation of $61.7, but is still a long term buy.
Another high flyer that hasn't been going anywhere is Google (NASDAQ: GOOG). Thanks to Eric Schmidt dumping nearly $120 million worth of stock in the past week alone, the stock has been hovering in the low $600s range. Google still remains the world's largest Internet company that specializes in search and advertising, leading Baidu (NASDAQ: BIDU) in China and Yandex (NASDAQ: YNDX) dominating in Russia. Its sheer size and ability to expand in display advertising pushes its gross revenue expectations to 26% in 2012 and 22% in 2013, but there is a lot of looming uncertainty. Google's search to safeguard MMI's patent portfolio could backfire in hurting company's growth and margins if it doesn't succeed in protecting Android from IP related attacks. In addition, excess expenditures that are associated with expansion as well as the adverse legal/regulatory developments could cause the company to lose market share this year. Despite the aforementioned, I still find value in Google as it trades nearly 37% below its S&Ps fair value calculation of $834.7.
Roughly $17 million worth of stock was sold in Chipotle (NYSE: CMG) between CEO Moran Montgomerry and director Ells Steve in the past week. These individuals have been incrementally selling into the strength as skeptisicm grows that the stock could be overvalued at these levels. Company expects its revenue to increase by 21% in 2012 with same store sales growing nearly 7%. Chipotle's capex has improved after they rolled out the new "Type A" model building units that were cost efficient and allowed them to expand in places they otherwise couldn't. While the stock is hovering in the $390 range, and even insiders are beginning to show signs of pessimism, the stock keeps climbing upwards. In the last few days I went from neutral to bullish on the stock. I believe its incredible resilience, even while the major indices were down, should catapult the stock over $400 by April.
Motley Fool newsletter services recommend Baidu, Chipotle Mexican Grill, Google and The Coca-Cola Company. The Motley Fool owns shares of Chipotle Mexican Grill, Google and The Coca-Cola Company. edgarambart30 has no positions in the stocks mentioned above. 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.