Stocks to Avoid Now?

If you're thinking of selling your stocks, you're not alone. According to insider tracker Form 4 Oracle, executives at these three firms cashed in shares last week:

The week's selling

Company

Closing Price 1/15/09

Total Value Sold

52-Week Change

H.J. Heinz (NYSE: HNZ  )

$35.17

$63,414,874

(19.5%)

Copart (Nasdaq: CPRT  )

$26.31

$6,443,064

(34.4%)

Jos. A Bank (Nasdaq: JOSB  )

$28.96

$351,973

31.6%

Sources: Fool.com, Yahoo! Finance, Form 4 Oracle.

Insiders sell for many reasons, ranging from compensation to estate or tax planning to just plain getting out, but the reasons are rarely (if ever) given. Having said that, these are open market sales, made by executives who have 100% control over the timing of their trades. Not so at Varian Medical Systems (NYSE: VAR  ) and Qualcomm (Nasdaq: QCOM  ) , whose insiders have mostly been cashing in on a predetermined schedule known as a 10b5-1 trading plan.

Firms typically find their way here because those selling either (a) exhibit good timing, or (b) are dumping significant portions of their stakes. Copart director Thomas Smith's selling troubles me for two reasons. First, volume, as he sold a half-million shares over three days last week. Second, he's not the only insider to sell in large chunks. Barry Rosenstein's investment partnership cashed in almost 44% of its Copart stake in December and was selling again this week.

I don't much like picking on Copart. Several members of the Motley Fool Rule Breakers team visited company headquarters during our fall trip to Silicon Valley and came away impressed by how management uses technology to gain an edge in the auto-salvage market. But with insiders selling in bulk near a 52-week low, I can't help but wonder if Fool Rich Smith's incisive skepticism is justified.

Anticipating a slowdown?
I'm equally curious when it comes to Heinz, an Income Investor pick that I've long thought about owning. Our daughter, Natalie, goes through a bottle of its ketchup a week. By herself.

Our 125,000-plus Motley Fool CAPS community also finds Heinz suitably tasty:

Metric

H.J. Heinz

CAPS stars (5 max)

****

Total ratings

522

Bullish ratings

479

Percent Bulls

91.7%

Bearish ratings

43

Percent Bears

8.3%

Bullish pitches

64

Bearish pitches

8

Note: data current as of Jan. 16, 2009.

"Just enough variety on this one to pull through, else the rotten veggies will be on me. Solid stable value play. Typically companies like [Heinz] beat the S&P in a recession and stay ahead of the curve slightly on the way back out. Steady dividend and reliable companies can grind through just about anything," wrote CAPS All-Star TSIF recently.

Sound thinking and absolutely correct in principle, although we might have said something similar about General Electric (NYSE: GE  ) or Citigroup (NYSE: C  ) not that long ago. Board member Nelson Peltz, an investor by trade, knows this. He liquidated more than 20% of his partnership's stake in Heinz this week and last.

Or did he? Peltz's Form 4 is coded and filed as if to document a series of sales. But the footnotes tell a different story. Quoting from the first footnote: "The price shown in Column 4 is a weighted average purchase price. The price range for the purchases is $36.62 to $37.11." [Italics added.] Other footnotes give ranges of $36.33 to $36.94 and $36.03 to $36.57.

Confused? You and me both. Peltz's investment company, Trian, didn't respond to my calls for clarification before deadline but a Heinz spokesperson confirmed that the transactions were sales. Trian also issued a statement in response to a Barron's story in which the firm expressed support for Heinz's plans for growth, which it apparently wouldn't have to do were Peltz and his peers buying.

So Peltz seems to be selling, in bulk, a stock trading for around 12 times earnings and which yields more than 4% in dividends. I'm not that gutsy. To me, that sounds like a stock you buy.

There's your update. See you back here next week for more stocks you should avoid.

Get the inside scoop on stocks of all sizes:

Beginning Jan. 12, 2009, Fool co-founder David Gardner, Jeff Fischer, and their Motley Fool Pro team will accept new subscribers to their real-money portfolio service. Motley Fool Pro is investing $1 million of the Fool's own money in long and short positions in a range of securities, including common stocks, put and call options, and exchange-traded funds (ETFs). They also incorporate proprietary CAPS "community intelligence" data into their research. To learn more about Motley Fool Pro and to receive a private invitation to join, simply enter your email address in the box below.

Fool contributor Tim Beyers also writes for Motley Fool Rule Breakers. Copart is a Stock Advisor selection. H.J. Heinz is an Income Investor pick.

Tim didn't own stock in any of the companies mentioned in this article at the time of publication. Check out his portfolio holdings and Foolish writings, or connect with him on Twitter as @milehighfool.

The Motley Fool is also on Twitter as @TheMotleyFool. Its disclosure policy is the undisputed heavyweight champ among disclosure policies.


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