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 5/15/09

Total Value Sold

52-Week Change

EMC (NYSE: EMC  )

$11.94

$648,588

(32.9%)

Morgan Stanley (NYSE: MS  )

$26.13

$687,154

(43.2%)

Sun Microsystems (Nasdaq: JAVA  )

$9.00

$604,807

(33.3%)

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 they rarely (if ever) explain themselves. That said, these are open market sales, made by executives who have 100% control over the timing of their trades. Not so at priceline.com (Nasdaq: PCLN  ) , FLIR Systems (Nasdaq: FLIR  ) , and Intermune (Nasdaq: ITMN  ) , 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 the insiders who are selling either (a) exhibit good timing, or (b) are dumping significant portions of their stakes. Data storage superstar EMC suffers more from volume than timing. Last week, global services chief Howard Elias and security division president Arthur Coviello, Jr. collectively sold more than 50,000 shares.

Elias was also among those who sold as EMC was cutting jobs in February. The stock price hasn't changed much since, but insiders are still selling. And they may continue to; EMC trades for a not-terribly modest 19 times trailing earnings. Not exactly cheap for a company whose sales fell 9% in the latest quarter.

For his part, CEO Joe Tucci joined Ben Bernanke and so many others by calling a market bottom in reporting results last month. "As we look to the balance of 2009, we believe the global IT spending environment has reached or is very near the bottom," Tucci said.

I'll believe him when his management team stops selling and starts buying.

Will this Sun ever set?
Sun's story is different. Oracle (Nasdaq: ORCL  ) intends to spend $7.4 billion to acquire the company, but reports have surfaced that Sun executives may have violated federal anti-corruption laws. Also, some investors are suing to block the deal.

Neither development is good, but the corruption charges are particularly bad. In its 10-Q quarterly filing with the SEC, Sun says that it has uncovered activities in a "certain foreign country" that may have violated the Foreign Corrupt Practices Act, or FCPA. What might that mean for Oracle? Read on:

The FCPA and related statutes and regulations provide for potential monetary penalties, criminal sanctions and in some cases debarment from doing business with the U.S. federal government in connection with FCPA violations, any of which could have a material effect on our business. [Emphasis added.]

Oh goody. Meanwhile, the company reported that investors have filed at least three class action lawsuits against Sun, its board of directors, and Oracle for failing to secure a better bid. None of the defendants had responded to the suits at the time of Sun's 10-Q, which was filed on May 7.

As you'd expect with this barrage of bad news, those following Sun in our 130,000-strong Motley Fool CAPS community remain relatively bearish, giving the stock a low two-star rating:

Metric

Sun Microsystems

CAPS stars (5 max)

**

Total ratings

1,698

Percent Bears

16.6%

Bearish pitches

62 out of 350

Data current as of May 17, 2009.

It's less clear whether the lawsuits or the corruption charges could block or at least forestall a deal with Oracle. On this point, insider selling isn't encouraging. Sun's Chief Technology Officer, Greg Papadopoulos, and Executive Vice President of Global Sales Peter Ryan each sold stock last week for less than $9 per share. Oracle's bid is for $9.50 per share. (Gulp.)

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:

Priceline.com is a Motley Fool Stock Advisor selection. FLIR Systems is a Motley Fool Inside Value pick. Intermune is a Motley Fool Rule Breakers recommendation. 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 Oracle 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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  • Report this Comment On May 27, 2009, at 3:21 AM, lordmorgul wrote:

    I think Peter Lynch would remind readers that insider selling really doesn't mean anything unless you actually know WHY... and as you have point out, they aren't really going to be telling you.

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