Stocks to Avoid Now?

Editors' note: Fools recognize that insider sales happen for many reasons. This article has been updated to make that clearer. In addition, we’ve taken the opportunity to correct a misstated dollar value in the first table, which we regret slid by us.

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 10/23/08

Total Value Sold

52-Week Change

Boston Scientific (NYSE: BSX  )

$8.45

$31,261,957

(41.9%)

Cantel Medical (NYSE: CMN  )

$9.27

$360,859

(46.1%)

JB Hunt Transport Services (Nasdaq: JBHT  )

$25.55

$27,036,322

(9.5%)

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

Note that 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 Vertex Pharmaceuticals (Nasdaq: VRTX  ) , whose insiders have been cashing in on a predetermined schedule known as a 10b5-1 trading plan.

I point this out because in my opinion our top three sellers appear to exhibit good timing, based on data from Form 4 Oracle. Cantel Medical chief financial officer Craig Sheldon is a good example. Form 4 Oracle says that he's made nine profitable sales dating back to the beginning of 2004. This is in addition to several insiders who were buying or selling during the same timeframe.

Bad times for Boston
Boston can't catch a break. The Sox are out, Tom Brady's recovery from knee surgery is going slowly, and shares of Boston Scientific are plummeting, down 32% over the past 30 days.

To me, Boston Scientific's story is the saddest of the three. And not just because I'm a native New Yorker and a lifelong Yankees fan. Boston Scientific's drop is troublesome because the selling pressure is artificial, driven by exactly the sort of margin call that torpedoed Chesapeake Energy CEO Aubrey McClendon.

The numbers aren't pretty. Board member Peter Nicholas began shedding shares on October 8. He's sold 19.4 million shares overall. Fellow director John Abele has dumped 17.3 million shares over the same period. But, again, these are forced sales, collateral for earlier buys made on margin.

Our 120,000-plus Motley Fool CAPS community has mixed feelings when it comes to Boston Scientific:

Metric

Boston Scientific

CAPS stars (5 max)

***

Total ratings

607

Bullish ratings

486

Percent Bulls

80.1%

Bearish ratings

121

Percent Bears

19.9%

Bullish pitches

85

Bearish pitches

42

Note: Data current as of October 24, 2008.

Rightly so, I think. As much as its purchase of Guidant now looks brilliant, Foolish colleague Brian Orelli recently wrote of Boston Scientific's struggle to create growth:

The good news for Boston Scientific is that demand for stents is increasing, although prices have been cut given the increased competition. Management thinks that its recently approved second-generation Taxus Liberte is going to arrest the slide of lost market share that the older Taxus is experiencing, but I'm not convinced. An updated stent just isn't going to be as exciting for cardiologists as the two new ones.

When will we see meaningful innovation? That's a tough question to answer, but a history of poor returns on invested capital isn't encouraging:

Company

ROIC

Johnson & Johnson (NYSE: JNJ  )

18.2%

Medtronic (NYSE: MDT  )

15%

St. Jude Medical (NYSE: STJ  )

15%

Boston Scientific

3.7%

Note: Data current as of October 24, 2008.

Yuck. Perhaps Nicholas and Abele should be grateful that they were forced to sell.

And that's your update. 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 Vertex 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. Chesapeake Energy is an Inside Value pick. Johnson & Johnson is an Income Investor recommendation. The Motley Fool's disclosure policy is the undisputed heavyweight champ among disclosure policies.


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