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 4/20/09

Total Value Sold

52-Week Change

Aeropostale (NYSE: ARO  )

$30.15

$7,951,828

(1.1%)

Gap (NYSE: GPS  )

$14.68

$34,206,100

(19.3%)

Ross Stores (Nasdaq: ROST  )

$38.59

$206,790

15.9%

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

Insiders sell for many reasons, from compensation to estate or tax planning to just plain getting out, but they rarely (if ever) share those reasons with us. That said, these are open-market sales, made by executives with 100% control over the timing of their trades. Not so at Fossil (Nasdaq: FOSL  ) , Polo Ralph Lauren (NYSE: RL  ) , and Netflix (Nasdaq: NFLX  ) , whose insiders have mostly been cashing out 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. For far too many retailers, including J. Crew Group (NYSE: JCG  ) last week, the latter's the case.

Take Aeropostale. Seven insiders have sold shares over the past week, including Chief Stores Officer Mary Jo Pile, Chief Financial Officer Michael Cunningham, and CEO Julian Geiger. Combined, they and their peers cashed in nearly $8 million in holdings.

Yet the young-adult and teen clothier has mostly been a recession-beater, thanks to rock-bottom prices. Fourth-quarter revenue soared 17%, thanks to successful expansion and a 6% rise in same-store sales during the holiday selling season.

Do these stock sales suggest that shares have topped out? Foolish colleague Alyce Lomax, a careful observer of all things retail, isn't sure. "Last I looked at Aeropostale, they seem to be doing really well despite the consumer spending issues. So that one does surprise me," she wrote to me earlier.

Same here -- but I'm even more surprised by the grouping. It's often telling when insiders buy and sell in bunches. Let's hope that's not the case here.

A gap in Gap
The lone bright spot to Aeropostale execs' insider sales: Their counterparts at Gap are selling a lot more, a lot faster -- more than $34 million over the past week. That's no way to reassure the already jittery investors following this stock in our Motley Fool CAPS investor intelligence database:

Metric

The Gap

CAPS stars (5 max)

*

Total ratings

680

Percent Bulls

51.5%

Percent Bears

48.5%

Bullish pitches

76 out of 145

Data current as of April 21, 2009.

"If you want to look like you buy your clothes at Goodwill, you may as well just go to Goodwill and save some money," wrote CAPS All-Star jstegma in February. Ouch.

There just isn't much to celebrate regarding The Gap. What's to like about a company whose best news in recent months was that fourth-quarter earnings weren't quite as bad as we all thought they would be? Revenue fell just 12%. Ooooooh, impressive -- or not. Says Alyce: "I don't think that retailer's going anywhere, the only good thing I can say about it is it has cash and no debt, other than that ... not a retailer that's high on my list of stock ideas."

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

Further Foolishness on stocks of all sizes:

Netflix is a Motley Fool Stock Advisor selection. Fossil is a Motley Fool Hidden Gems recommendation. Try either of these Foolish services free for 30 days.

Fool contributor Tim Beyers also writes for 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.


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