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 last week:

The week's selling

Company

Closing Price 2/5/09

Total Value Sold

52-Week Return

EMC (NYSE: EMC  )

$11.77

$6,519,293

(24.2%)

NVR (NYSE: NVR  )

$397.73

$33,355,861

(35.5%)

Steel Dynamics (Nasdaq: STLD  )

$12.69

$22,767,028

(47.4%)

Sources: Yahoo! Finance, Form 4 Oracle.

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 Morningstar (Nasdaq: MORN  ) and Biogen Idec (Nasdaq: BIIB  ) , whose insiders have mostly been cashing in on a predetermined schedule known as a 10b5-1 trading plan.

Firms typically find their way here because those selling either (a) exhibit good timing, or (b) are dumping significant portions of their stakes. So when Steel Dynamics board member John Bates sold off roughly 47% of his direct holdings in the company this week and last, I got curious.

As a co-founder, Bates has unique insight into the operations of Steel Dynamics. He's also been a director since 1993 and is the president and CEO of Heidtman Steel, the single largest customer of Steel Dynamics' products. Does he have reason to believe demand will slacken further?

Could be. Steel Dynamics has had a difficult time turning a profit. The company reported a fourth-quarter net loss of $82.7 million, or $0.45 per share, down from last year's $0.50-per-share profit. Revenue fell 17%. Yuck.

EMC = sales
I find Bates' selling troubling, but he's also just one guy. On the other hand, several of EMC's executives are selling.

Insiders don't have a huge stake in the company -- less than 1%, according to Capital IQ. But four executives cashed in more than $6 million in stock this week. Human resources vice president John Mollen sold 18% of his direct holdings. Storage division president David Donatelli sold nearly 25% of his stake. And general counsel Paul Dacier dumped 100,000 shares.

The timing is troubling. EMC, like Cisco (Nasdaq: CSCO  ) and Electronic Arts (Nasdaq: ERTS  ) , is laying off employees to cut costs for the downturn. "In 2009, we are very focused on managing our business to successfully navigate this tough economic environment. And toward this, we have already taken proactive measures to reduce our overall cost structure and improve the future efficiencies of our global operations," chief financial officer David Goulden told analysts during the Q4 earnings conference call.

Fair enough. Tough times demand disciplined management. Still, is it fair for top executives to be cashing in so much stock as others collect pink slips? It doesn't feel right.

But don't tell that to our 125,000-strong Motley Fool CAPS community. They love EMC:

Metric

EMC

CAPS stars (5 max)

*****

Total ratings

2,964

Percent Bulls

95.6%

Percent Bears

4.4%

Bullish pitches

47 of 501

Data current as of Feb. 6, 2009.

Even those who don't like the business all that much, like CAPS investor ironcowboy, still see the stock outperforming the S&P 500. Quoting from this Fool's late December pitch:

EMC has historically underperformed the S&P 500, Why? Until it develops an advanced new product(S) and clearly establishes itself as a true leader in that niche, it will continue to track just above the S&P 500. It will likely outperform due to business demanding better computer systems infrastructure, and emphasis on more automated systems.

I'd love to believe that. Management's selling tells a different story.

There's your update. See you back here next week for more stocks you might want to avoid.

Get the inside scoop on stocks of all sizes:

Biogen Idec, Electronic Arts, and Morningstar are Stock Advisor selections. Try this Foolish service free for 30 days.

Fool contributor Tim Beyers also writes for Motley Fool Rule Breakers. Tim didn't own stock in any of the companies mentioned in this article at the time of publication. Check out his portfolio holdings and Foolish writings, or connect with him on Twitter as @milehighfool.

The Motley Fool owns shares of Morningstar and is also on Twitter as @TheMotleyFool. Its disclosure policy is the undisputed heavyweight champ among disclosure policies.


Read/Post Comments (2) | Recommend This Article (12)

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 February 09, 2009, at 11:45 PM, mtrmetals wrote:

    Bates took a 10 million dollar bankruptcy hit in the last 30 days at Heidtman, so it is quite possible his sales have nothing to do with SDI and more to do personal necessity . Heidtman also shut down their plant right outside of the SDI mill in Butler. Many believe he is liquidating his position to raise cash for himself, not because of weakness at SDI, although things are clearly weak there too.

  • Report this Comment On February 11, 2009, at 9:47 AM, TMFMileHigh wrote:

    'Morning mtmetals,

    That's outstanding context. Thank you very much for commenting.

    FWIW and Foolish best,

    Tim (TMFMileHigh and @milehighfool)

Add your comment.

Sponsored Links

Leaked: Apple's Next Smart Device
(Warning, it may shock you)
The secret is out... experts are predicting 458 million of these types of devices will be sold per year. 1 hyper-growth company stands to rake in maximum profit - and it's NOT Apple. Show me Apple's new smart gizmo!

DocumentId: 827443, ~/Articles/ArticleHandler.aspx, 9/21/2014 10:20:43 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