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 3/26/09

Total Value Sold

52-Week Change

Toll Brothers (NYSE: TOL  )

$19.96

$5,276,220

(10.8%)

Arena Resources (NYSE: ARD  )

$29.50

$4,678,024

(21.9%)

Smith & Wesson (Nasdaq: SWHC  )

$6.80

$1,255,970

35.7%

Sources: Fool.com, 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 Oracle (Nasdaq: ORCL  ) and Burger King (NYSE: BKC  ) , whose insiders have mostly been cashing in on a predetermined schedule known as a 10b5-1 trading plan.

Firms typically find their way to this column because those selling either (a) exhibit good timing or (b) are dumping significant portions of their stakes. With energy specialist Arena Resources, it's the latter. CEO Phillip Terry and Chief Financial Officer Randy Broaddrick were both selling this week.

Terry's selling is most troubling, though it might not seem so at first blush. See, according to his most recent Form 4 filing, Terry today owns rights to 400,000 Arena shares versus just 260,000 in mid-October.

Trouble is, of those 400,000 shares, 310,000 are tied to options that have yet to be exercised. And only 150,000 of those are in the money. Today, Terry holds just 90,000 shares directly. He held more than double that a week ago.

Why sell now? Is the business deteriorating? That's too strong a word. Even so, a $4.7 million one-time gain on an oil derivative fueled Arena's 44% fourth-quarter profit boost. Revenue fell 6% over the same period, partly due to a sharp drop in oil prices.

"Oil rally ends and so does [Arena Resources] rally," wrote Motley Fool CAPS All-Star investor dex10picks earlier this month. Terry's and Broaddrick's selling suggest that we won't see another rally soon.

Holster that pistol, Fool
Smith & Wesson has seen a mighty rally of its own. Shares of the firearms manufacturer have more than doubled in 2009. Yet those following the stock in our 130,000-member Motley Fool CAPS community seem to wonder if it's run too far, too fast:

Metric

Smith & Wesson

CAPS stars (out of 5)

***

Total ratings

721

Percent bulls

92.8%

Percent bears

7.2%

Bullish pitches

171 out of 184

Data current as of March 27, 2009.

"Ran up nicely the past month, but Smith and Wesson is sitting well above its value even assuming a run on guns. Could be that some were going to Mexico, but Smith and Wesson doesn't make the type of guns that are preferred down in that voltile border area," wrote CAPS investor TSIF two weeks ago. Continuing:

[Smith & Wesson] lost money last quarter, I don't think we should expect a massive turnaround, but slow growth should be viable with the addition of the rifles and the long guns. In the short run, the Pawn Shops and streets already over-runneth with firearms and a P/B of near 6 is not supported. The fear that Obama will put restrictions on hand guns is real, but more than priced in at this point. Bad economy's lead to crime, but even Dirty Harry only has two hands.

True. But the stimulus could help get more firearms into the hands of police and the military, a windfall that could also benefit Sturm, Ruger & Company (NYSE: RGR  ) and TASER (Nasdaq: TASR  ) .

The question is: Will federal funding be enough to keep cash flowing for the long term? Significant selling by board member Mitchell Saltz -- $1.26 million worth over the past week alone -- raises doubts.

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 with related Foolishness:

Fool contributor Tim Beyers also writes for Motley Fool Rule Breakers. He 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 is also on Twitter as @TheMotleyFool. Its disclosure policy is the undisputed heavyweight champ among disclosure policies.


Read/Post Comments (3) | 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 March 27, 2009, at 5:14 PM, tikka111 wrote:

    The reason the insider is selling at Smith and Wesson is a multi million dollar customer went into Chapter 11 this week owing them millions. See Sportsmans Wareshouse.

  • Report this Comment On March 27, 2009, at 11:40 PM, jwest94 wrote:

    I want to know how Ruger would gain ANY sales to law enforcement. I don't know of any law enforcement agencies that carry Rugers.

  • Report this Comment On March 28, 2009, at 4:36 PM, TSIF wrote:

    jwest94, I believe you are basically correct. The article does say the stimulus package will help those selling to the police and the military adn Ruger does sell to the military. The stimulus package however is geared to the police departments and SWHC could benefit. In the short run however, the money SWHC could make from the stimulus package is most likely a year away. They are losing current business to Beretta. I would not have red thumbed SWHC if I had considered the stimulus package, but we will see how far out Mr. Market looks. At current prices and with a two quarter look out, SWHC is overvalued. Good luck.

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