Stocks to Avoid Now?

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

The week's selling

Company

Closing Price 11/14/08

Total Value Sold

52-Week Change

Bankrate (Nasdaq: RATE  )

$29.68

$2,284,049

(28.7%)

United Rentals (NYSE: URI  )

$6.26

$116,761

(73.4%)

USANA Health Sciences (Nasdaq: USNA  )

$35.05

$1,762,500

(18.6%)

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

Insiders sell for many reasons, from compensation to estate or tax planning to just plain getting out, but their explanations are rarely (if ever) given. That said, these are open-market sales, made by insiders who have 100% control over the timing of their trades. Not so at Panera Bread (Nasdaq: PNRA  ) and Morningstar (Nasdaq: MORN  ) , 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. Bruce Berkowitz of the Fairholme (FAIRX) fund, a big owner of United Rentals shares, is a good example. He and his team were drawing down their position late last month, at 30% more than what investors are bidding today.

Fairholme has also profitably sold Mueller Water Products (NYSE: MWA  ) and, as of August, had a new position in UnitedHealth (NYSE: UNH  ) , a Stock Advisor recommendation that has seen recent insider buying. Color me curious.

What's your diagnosis, stock doctor?
But color me "curiouser" elsewhere. Good nutrition does a body good -- but a portfolio, well, that's another matter. Ask anyone who owns shares of vitamin seller USANA Health Sciences, which is down 18% over the past 52 weeks.

Most of those who follow USANA in our 120,000-plus Motley Fool CAPS community believe investors should expect further losses:

Metric

USANA Health

CAPS stars (out of 5)

*

Total ratings

393

Bullish ratings

172

Percent bulls

43.8%

Bearish ratings

221

Percent bears

56.2%

Bullish pitches

26

Bearish pitches

39

Data current as of Nov. 18, 2008.

Reasons vary. One Fool, CAPS All-Star kwill10, isn't fond of the hype. "When a company's press releases featured on their web site include a boxer who defended his WBC title successfully, you have to worry a little."

Maybe. At the very least, it's a questionable use of shareholder capital. Truly excellent firms rarely engage in hype. Most often, such backslapping is a Jedi mind trick, meant to throw off investors who'd run if they really studied the financials.

USANA's financials won't be convincing anyone that these aren't the droids they're looking for. Its numbers are decent enough, save for the third quarter. Revenue ticked up less than 1% in that period, but net income declined 28% because of higher expenses. Weakening cash flow and a leveraged balance sheet also leave some room for concern.

Still, some investors remain bullish. "Baby boomers aging will need lots of good nutritional supplements as they age and the AMA continues suggesting we take our vitamins and more health benefits are discovered alongside the weakness of our regular food," wrote CAPS investor capitalgorilla in August.

High insider ownership also gives him confidence. But that may be changing. Last week, USANA founder Dr. Myron Wentz sold 50,000 shares through his investment company, Gull Holdings. CEO Dave Wentz was selling in September and October.

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

Further Foolishness on stocks of all sizes:

UnitedHealth is an Inside Value pick. Fairholme is a Champion Funds recommendation. Panera Bread is a Hidden Gems Pay Dirt pick. Morningstar and UnitedHealth are Stock Advisor selections. The Motley Fool owns shares of UnitedHealth and Morningstar. Try any of our market-beating investing newsletters free for 30 days.

Fool contributor Tim Beyers also writes for Motley Fool Rule Breakers, which counts Bankrate 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. The Fool's disclosure policy is the undisputed heavyweight champ among disclosure policies.


Read/Post Comments (1) | Recommend This Article (0)

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 18, 2008, at 11:47 PM, capitalgorilla wrote:

    Hi Tim,

    on USNA:

    1) Myron Wentz has no salary so he lives on selling shares.

    2) Myron through GIll holdings tried to take the company private earlier this year and acquired many shares to strengthen his voice. Privatization is not happening soo....?? sell some on the way above 35?

    3) USNA has dogged the market recently despite not too great Q3 results. Might be attributed to

    a) Same thesis Jim Cramer used on Herbalife: Network marketing, USNAs sales mode, is attractive to consumers/prosumers during crisis times like this.

    b) USNA opened for business overseas, especially Malaysia and Philippines which see to grow.

    c) Consequently Q4 forecast is....up. at 64-70c EPS.

    Rgds, Steve aka CAPS player Capitalgorilla.

Add your comment.

DocumentId: 778427, ~/Articles/ArticleHandler.aspx, 7/28/2014 5:03:55 PM

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