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, 11/20/08

Total Value Sold

52-Week Change

PG&E (NYSE: PCG  )

$34.26

$1,307,371

(21.6%)

Martha Stewart Living (NYSE: MSO  )

$3.20

$402,158

(67.6%)

RealNetworks (Nasdaq: RNWK  )

$3.07

$212,860

(48.9%)

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. Having said that, these are open-market sales, made by executives who have 100% control over the timing of their trades. Not so at Heartland Payment Systems and Omniture (Nasdaq: OMTR  ) , whose insiders have mostly 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. Charles Koppelman, forever etched in my memory as the lone male judge in the short-lived Martha Stewart edition of The Apprentice, is a good example. He's been making profitable sales of Martha Stewart Living Omnimedia stock since 2006.

Let's get Real
RealNetworks hasn't been a real player -- pardon the pun -- in the digital music market for years. Competition is everywhere, and not just from Apple (Nasdaq: AAPL  ) . Napster has Best Buy (NYSE: BBY  ) as its retail partner. Microsoft (Nasdaq: MSFT  ) has a revamped Zune Pass service. And the Pandora Internet radio system is back in boxes, such as Samsung's BD-P2550.

RealNetworks, meanwhile, has its MTV. Our 120,000-plus Motley Fool CAPS community isn't impressed:

Metric

RealNetworks

CAPS stars (out of 5)

**

Total ratings

220

Bullish ratings

181

Percent bulls

82.3%

Bearish ratings

39

Percent bears

17.7%

Bullish pitches

32

Bearish pitches

9

Data current as of Nov. 21, 2008.

"I think that this company is a loser in the long term because they are terrible at everything they do. Well, maybe that's harsh, but they are certainly not a leader in anything that they do," wrote CAPS investor TechPicks a year ago. "Their streaming media player has been outclassed by a website based on flash (Youtube). I don't see realmedia files anywhere anymore. Their music store is not the cheapest, most portable, or the one offering the biggest selection. A face among the crowd with no edge except it's association with MTV. (Is that really so great? Does it beat association with iPods? An established online retailer, or a music label?)"

Good points, all. I'll add that RealNetworks' management blamed the poor economy and a strengthening dollar for advertising cutbacks that led to a weak third-quarter performance and an even weaker fourth-quarter outlook. The numbers don't add up. Overall, online advertising improved both sequentially and year-over-year in Q3, according to a new report from the Interactive Advertising Bureau and PriceWaterhouseCoopers.

What's more, RealNetworks offered a kingly deal to its new games division head, John Barbour. Among the perquisites were a $400,000 relocation allowance, $15,000 for "miscellaneous incidental expenses," options to purchase up to 500,000 RealNetworks shares, and a 200% target cash bonus for 2009 that, if met, would net him $900,000.

Barbour was also granted the right to purchase up to 2% of the outstanding shares of a planned games-division spinoff. That'd be an excellent risk-sharing arrangement if Barbour weren't already raking in so much cash.

Insiders, meanwhile, seem uninterested in waiting to see what value -- if any -- a spinoff would create. Earlier this week, board member Jeremy Jaech sold off close to 97% of his direct holdings in RealNetworks. Fellow director Edward Bleier cashed out his entire direct stake.

Combined, they also held 440,000 exercisable options as of April 4. But with the stock down 50% since then, it's a good bet that plenty of what was exercisable is now underwater.

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 with related Foolishness:

Fool contributor Tim Beyers also writes for Motley Fool Rule Breakers. Get access to all of Tim's Foolish writings here.

Tim had stock and options positions in Apple at the time of publication. Microsoft and Best Buy are Inside Value picks. Apple, Best Buy, and Omniture are Stock Advisor selections. Heartland Payment Systems is a Hidden Gems recommendation. The Motley Fool owns shares of Best Buy. Its disclosure policy is the undisputed heavyweight champ among disclosure policies.


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  • Report this Comment On November 22, 2008, at 11:10 AM, sybernuts wrote:

    And don't forget their aggressive quasi-malware marketing... a sure sign of trouble.

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