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 5/28/09

Total Value Sold

52-Week Change

IBM (NYSE: IBM  )

$104.69

$1,950,823

(17.5%)

IPG Photonics (Nasdaq: IPGP  )

$10.09

$7,719,999

(48.8%)

Princeton Review (Nasdaq: REVU  )

$4.56

$4,199,999

(41.3%)

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 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 F5 Networks (Nasdaq: FFIV  ) , McKesson Corp. (NYSE: MCK  ) , and Morningstar (Nasdaq: MORN  ) , 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. Volume is the problem for IPG Photonics, a two-time Motley Fool Rule Breakers recommendation that hasn't performed nearly as well as I or the rest of the team would have liked.

But is it a stock worth selling? Not according to Fool analyst Stan Huber, who operates in CAPS under the moniker TMFPlatoish:

This one is finally cheap enough to jump on board. However, I do so with some mixed feelings and a bucket of long term concerns. IPG is the first significant mover in an emerging technology. Fiber lasers have significant advantages over traditional CO2 lasers in certain applications, not the least of which is lower maintenance costs. For now, IPG is the market leader in this field.

Interestingly, although he just added his pitch earlier this month, Stan's call dates back to early March at $7.50 per share, or a few cents below what board member Bill Hurley paid when he bought shares around the same time. Now, after a substantial recovery in the stock price, CEO Valentin Gapontsev has sold 800,000 shares, or roughly 7% of his direct stake.

Stan's timing has to be a coincidence, and yet I find it interesting that he has always harbored some concerns about management's stewardship. Continuing:

While I'm sold on the technology, I'm less sanguine about the company and its management. It is a controlled company in the sense that the founder and his son hold a 50% stake. They will be making the decisions and shareholders are along for the ride.

In a situation like this, it is really a bet on management. And there is the rub. I've been put off by what I view as a somewhat arrogant attitude. When I hear the CEO say that their secret recipe for making these devices is safe because they compartment the information and only the folks at the top know the complete recipe, it raises a red flag. Is this a manufacturing company or a clandestine operation?

And if this really is the Next Big Thing in lasers -- it certainly appears to be -- then why is the CEO selling so much stock? Why now? Be careful, Fools.

Boo hoo for Big Blue?
For years I've been bullish when it comes to Big Blue. No other company in the world matches its breadth of hardware, software, and services for addressing technology problems. Only Oracle (Nasdaq: ORCL  ) comes close, and that's because of its pending acquisition of Sun Microsystems.

Don't tell that to our 130,000-strong Motley Fool CAPS community. They harbor somewhat mixed feelings when it comes to IBM:

Metric

IBM

CAPS stars (5 max)

***

Total ratings

3,504

Percent Bulls

89.4%

Bullish pitches

432 out of 500

Data current as of May 28, 2009.

Do executives feel similarly? I doubt it. Even so, three of them have sold shares recently. Last week, Controller James Kavanaugh parted with more than 19,000 shares. The week prior, company senior vice presidents Randall MacDonald and Timothy Shaughnessy sold 27,000 shares combined. Not exactly a bearish sign, but not a good sign, either.

I'm still betting on Big Blue for the long term, but it's nevertheless a good idea to watch for more sales like these.

Get the inside scoop on stocks of all sizes with related Foolishness:

McKesson and Morningstar are Motley Fool Stock Advisor selections. Princeton Review is a Motley Fool Hidden Gems pick. IPG Photonics 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 IBM and 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 owns shares of IPG Photonics and Morningstar and is also on Twitter as @TheMotleyFool. Its disclosure policy is the undisputed heavyweight champ among disclosure policies.


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