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 this week:

The week's selling

Company

Closing Price 10/8/08

Total Value Sold

52-Week Return

CarMax (NYSE: KMX  )

$9.82

$1,457,823

(55.2%)

General Growth Properties (NYSE: GGP  )

$5.40

$28,002,255

(90%)

Matrix Service (Nasdaq: MTRX  )

$10.62

$716,813

(58.1%)

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

These are open market sales, made by executives who have 100% control over the timing of their trades. Not so at Infinera (Nasdaq: INFN  ) and RF Micro Devices (Nasdaq: RFMD  ) , whose insiders have been cashing in on a predetermined schedule known as a 10b5-1 trading plan.

I point this out because our top three sellers tend to exhibit good timing. Not unlike Chesapeake Energy CEO Aubrey McClendon, they preserve capital by selling before the fall. CarMax director Beth Stewart is a good example. Form 4 Oracle says that she's made six very profitable sales of CarMax and General Growth Properties stock so far this year.

Shrinking Growth?
She's not the only one. Shares of General Growth have been in freefall since July due to concerns about its debt, which, according to Capital IQ, accounts for more than 90% of its capital.

But debt is only part of this stock market sob story. Selling pressure has been building since August, when company president Bob Michaels sold 700,000 shares to cover a margin call, The Wall Street Journal reports. He sold another 500,000 the very next month. Colleagues followed to -- yep, that's right -- repay margin loans.

So, let's not credit these sellers for their smarts. Stewart, on the other hand, deserves a golf clap. She began selling shares of General Growth Properties in March, long before her colleagues fell outside the margin.

Interestingly, our 115,000-plus Motley Fool CAPS community might consider that late. Fools last gave The General two stars -- as in, "well, we don't think you're completely awful, just mostly awful" -- in January. The current numbers aren't any better:

Metric

General Growth

CAPS stars (out of 5)

*

Total ratings

302

Bullish ratings

152

Percent Bulls

50.3%

Bearish ratings

150

Percent Bears

49.7%

Bullish pitches

28

Bearish pitches

19

Data current as of Oct. 8, 2008.

As CAPS investor mikemasland wrote in July, "U.S. consumer is feeling major financial pressures. Strip malls traffic will shrink as gas continues to rise. Strip malls traffic will shrink as unemployment continues to rise. Commodity prices & oil prices are shrinking margins for businesses. Expect commercial REITs thats own/operate/manage strip-malls to be under financial pressures in the coming months."

He's way up on that bearish call, obviously. But that may be as much due to timing as anything else. (Watch insiders panic-sell and reap the profits.) Why? According to the National Association of Real Estate Investment Trusts, retail REITs have lost just 4% so far this year, and that's pulled down by worse results from Vornado Realty Trust (NYSE: VNO  ) and Regency Centers (NYSE: REG  ) .

So could the selling at General Growth be overdone? Unlikely. The General's plan to sell assets and preferred equity to raise critically needed capital -- while admirable and certainly workable on paper -- may not work. The credit crunch has left few buyers. And those who are buying (i.e., Buffett) are after the biggest fish (i.e., Goldman Sachs and General Electric) and demanding usurious terms.

Extreme dilution or bankruptcy: Those appear to be the two likeliest outcomes for General Growth Properties, but I hope I'm wrong. See you back here next week for more stocks you should avoid.

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Fool contributor Tim Beyers is badly lagging in CAPS. He also writes for Motley Fool Rule Breakers, which counts Infinera among its holdings. Get access to all of Tim's Foolish writings here.

Tim didn't own shares in any of the companies mentioned in this article at the time of publication. CarMax and Chesapeake Energy are Inside Value picks. The Motley Fool owns shares of Infinera. Its disclosure policy is the undisputed heavyweight champ among disclosure policies.


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  • Report this Comment On October 10, 2008, at 3:08 PM, JJX88 wrote:

    I don't see any executive selling on form 4 oracle for MTRX this week? it looks like only a 10% shareholder had activity this week?? any link to this info?

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