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 4/28/09

Total Value Sold

52-Week Change

BlackRock (NYSE: BLK  )

$146.84

$13,997,399

(25.9%)

Red Hat (NYSE: RHT  )

$17.35

$601,496

(16%)

Cypress Semiconductor (NYSE: CY  )

$7.62

$1,399,453

69.3%

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

Insiders sell for many reasons, including compensation, estate or tax planning, or just plain getting out. But they rarely (if ever) share those reasons with us. That said, these are open market sales, made by executives who have 100% control over the timing of their trades. Not so at TiVo (Nasdaq: TIVO  ) , Hewlett-Packard (NYSE: HPQ  ) , and Panera Bread (Nasdaq: PNRA  ) , 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 their sellers either (a) exhibit good timing, or (b) are dumping significant portions of their stakes. With financier BlackRock, the latter's the case.

Not one insider or significant institutional owner had sold more than 1,000 shares since the beginning of the year -- until company president Robert Kapito sold 100,000 shares last Wednesday, 50,000 of which he acquired via option exercises at $37.36 a share.

He's cashing in at an interesting time. Consider BlackRock's first-quarter earnings report, also issued last week. Net income fell 65%. Revenue declined 24%. Total assets under management fell 6% to $1.28 trillion.

With numbers like that, you'd think that BlackRock's chief executive, Laurence Fink, would strike a cautious tone in his forward-looking comments. You'd be wrong:

In the second half of March, global equity markets found their footing, and institutional clients began issuing requests for proposals for the first time since last summer. In addition, demand for international retail products began to pick up after a prolonged industry contraction in which we maintained strong market position.

The stock rallied 10% after the report and is still rising. Good timing, Mr. Kapito.

Red Hat in the black
I'm not only a big fan of cloud computing -- accessing computing software and services over the Web -- but also of the firms and technologies that enable it, including Red Hat.

The company is a popular distributor of the Linux operating system for Web servers found in the data centers that help to create and sustain the "cloud." IBM and Sun Microsystems (Nasdaq: JAVA  ) number among Red Hat's server-making customers.

If there's a knock on Red Hat, it's that the Linux operating system is open source, freely available to anyone who wants to use it. Red Hat profits by adding services -- the JBoss application server, for example -- and selling support to corporate clients that use its software.

That strategy is paying off. Red Hat reported a 17.5% rise in revenue and a 9.5% gain in cash from operations in its fiscal fourth-quarter.

Interestingly, the Foolish investors following Red Hat in our 130,000-plus Motley Fool CAPS investor intelligence database anticipated the good news, upgrading Red Hat from two to three stars in January. A majority of them still like the stock today:

Metric

Red Hat

CAPS stars (5 max)

***

Total ratings

583

Percent Bulls

82.5%

Percent Bears

17.5%

Bullish pitches

97 out of 123

Data current as of April 29, 2009.

"Ended 2008 strong, has tons of cash and little debt, and will benefit from the ever persistent threat of Confiker and its ilk wrecking havoc on Microsoft products perpetually targeted by hackers," wrote CAPS All-Star NLP49 in March.

So, why has longtime Red Hat executive and current board member Matthew Szulik been selling in bulk? Your guess is as good as mine. I only know that he's cashed in more than one-fourth of his direct holdings since mid-April.

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:

Microsoft is a Motley Fool Inside Value pick. Try any of our Foolish newsletter services free for 30 days.

Fool contributor Tim Beyers also writes for Motley Fool Rule Breakers. He owned shares of IBM 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 (0) | Recommend This Article (7)

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.

Be the first one to comment on this article.

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: 886942, ~/Articles/ArticleHandler.aspx, 11/24/2014 2:21:01 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