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, 11/6/08

Total Value Sold

52-Week Change

NVR (NYSE: NVR  )

$438.08

$1,966,016

(3.7%)

Simpson Manufacturing (NYSE: SSD  )

$24.06

$3,972,659

(13.6%)

CME Group (NYSE: CME  )

$259.64

$2,275,783

(60.8%)

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

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. That said, these are open-market sales, made by executives who have 100% control over the timing of their trades. Not so at CV Therapeutics (Nasdaq: CVTX  ) and Celgene (Nasdaq: CELG  ) , 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. Simpson Manufacturing CEO Thomas Fitzmyers is a good example. According to the analysts at Form4Oracle, he's made 11 profitable sales dating back to 2003, including his latest, in which he dumped close to 50% of his direct stake. That's not necessarily an indictment of this excellent business, a Motley Fool Hidden Gems pick which recently reported strong third-quarter revenue and earnings. But it is curious.

First you CME, then you don't
Equally curious is this press announcement from CME Group. Quoting from its congratulatory note to President-elect Barack Obama, a native of CME's home state of Illinois:

We congratulate Senator Obama and look forward to working with him to restore confidence in the U.S. financial markets system. We face tremendous challenges in the months ahead as we guide our economy toward recovery. For the United States to retain its position as a world leader, it is critical that our financial markets have the support and infrastructure needed to successfully compete in the global economy.

Makes sense. But is this (a) really a good use of shareholder capital and (b) anything other than grandstanding? Why not send a private note? We all know the president-elect will face economic challenges that may require additional stimuli. (Get more Foolish analysis of the impact of an Obama administration here.)

But trading volumes at the major exchanges should persist, right? Certainly they have for both NYSE Euronext (NYSE: NYX  ) and Nasdaq OMX (Nasdaq: NDAQ  ) . Similarly, our 120,000-plus Motley Fool CAPS community predicts a bullish future for CME Group, which is the heavy when it comes to brokering futures and options contracts:

Metric

CME Group

CAPS stars (out of 5)

****

Total ratings

679

Bullish ratings

633

Percent Bulls

93.2%

Bearish ratings

46

Percent Bears

6.8%

Bullish pitches

96

Bearish pitches

10

Data current as of Nov. 7, 2008.

"This company at around $300 (or 16.35 Bill Mkt Cap) per share trades at a compelling P/E of approximately 17 and Price to EBT of just 11 ... These price multiples are vastly lower than the historical average for CME," wrote CAPS investor Watch375k in September.

"Futures transactions will only continue to increase over the long-term. Nevermind the short-term gyrations of the trading volume that are announced on a monthly basis. Volumes will continue to move around over the short term as a result of a negative market, but volumes typically pick up when the market starts moving in a positive direction."

Certainly you'd think so. Which is exactly why I find it so confusing that four separate insiders have each sold off more than 10% each of their direct stakes in CME this week.

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

Get the inside scoop on stocks of all sizes with related Foolishness:

Get all the inside information you need in our collection of investing newsletters. From wallflowerish small caps to swashbuckling Rule Breakers, we've got something for every investor. Get in on the action today; all of our newsletters offer a 30-day risk-free trial. All you have to lose is the prospect of better returns.

Fool contributor Tim Beyers also writes for Motley Fool Rule Breakers, which counts CV Therapeutics and NYSE Euronext among its recommendations. 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. Nasdaq OMX is an Inside Value pick. Simpson Manufacturing is a Hidden Gems recommendation. The Motley Fool's disclosure policy is the undisputed heavyweight champ among disclosure policies.


Read/Post Comments (3) | Recommend This Article (1)

Comments from our Foolish Readers

Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment Report this Comment icon found on every comment.

  • Report this Comment On November 07, 2008, at 8:47 PM, stompthelie wrote:

    it's funny, this column supported this stock the entire time the market has been sold by panic selling and at the bottom it takes a bearish stance. in other words the column is completely clueless about investing. buy high, sell low. is that what you tell your readers?

  • Report this Comment On November 07, 2008, at 9:40 PM, TMFMileHigh wrote:

    Hello stompthelie. Would you mind providing a little more detail? This column has never before mentioned CME, Simpson, or NVR. Thanks much, Tim (TMFMileHigh)

  • Report this Comment On November 10, 2008, at 11:04 AM, MF1085 wrote:

    The insider selling for cme is because the lockup of cme shares concerning the cboe class action suit is over. The lockup date ended november 3rd and it took a few days to transfer shares from the holding company to various accounts.

Add your comment.

DocumentId: 772152, ~/Articles/ArticleHandler.aspx, 4/24/2014 7:29:43 AM

Report This Comment

Use this area to report a comment that you believe is in violation of the community guidelines. Our team will review the entry and take any appropriate action.

Sending report...


Advertisement