Eye on Insiders: Best Buy

Watching insiders is like participating in a weeks-long stakeout. You expect something to happen, but you don't know what. So you settle in, sip your coffee, and wait for clues to solving the big case.

Here, the "case" is direction: Which way is your stock headed? The "clues" come in the form of insider buying and selling action. Let's have a look at Best Buy (NYSE: BBY  ) over the past year.

Insider Rating

Moderately Bearish
Plenty of buying at much lower stock prices, and some sales at prices higher than current, but volume of selling a bearish sign.

Business Description

Arguably the leading U.S. electronics retailer.

Recent Price

$38.89

CAPS Stars (Out of 5)

***

Percentage of Shares Owned by Insiders

17.28%

Net Buying (Selling)*

($6.15 million)

Last Buyer (% Increase)

Ronald James, Director
1,900 shares at $40.74 apiece on April 2
(Purchase bolstered direct holdings by 54%.)

Last Seller (% Decrease)

Richard Schulze, Chairman
23,700 shares at $41.00 apiece on Oct. 19
(Sale represented less than 1% of direct holdings.)

Competitors

Amazon.com (Nasdaq: AMZN  )
Wal-Mart (NYSE: WMT  )

CAPS Members Bullish on BBY Also Bullish on

Apple (Nasdaq: AAPL  )
General Electric (NYSE: GE  )

CAPS Members Bearish on BBY Also Bearish on

Bank of America (NYSE: BAC  )

Recent Foolish Coverage of BBY

3 Stocks Ready to Roar
Microsoft -- Coming Soon to a Mall Near You?
Amazon Heeds Your Urgency

Sources: Form 4 Oracle, Capital IQ, and Motley Fool CAPS. (Data current as of Nov. 3.)
*Open market sales and purchases only.

What we're tracking here, and why
Insider buying data can be confusing. Here, I'm concentrating only on buying and selling conducted in the open market. With most of these transactions, insiders control the timing. Other times they're buying or selling under the purview of a 10b5-1 plan. Either way, personal holdings are being bought and sold.

Those personal holdings matter the most -- they're the shares executives hold for investment, rather than compensation. Employee stock options are different; they're compensatory in the purest sense. I've stripped out options-related buying and selling from the calculations you see above.

The Foolish view: Moderately bearish
Value investing is always going to feel a little crazy. In Best Buy's case, it probably seems loony to bet on a retailer when consumer spending remains weak and unemployment sits near double-digits. A stimulated economy may not produce sustainable growth.

And that's just the macro view of Best Buy's problems. The micro view is competition from Amazon, Wal-Mart, Apple, and -- soon -- Microsoft (Nasdaq: MSFT  ) . Last month, CAPS All-Star DarthMaul09 wrote:

I tend to go to Best Buy to look at what's available and check out their prices. Then I go online to check Internet retailers that I have used in the past and have offered good prices and service. Usually I can find a better deal than at Best Buy plus no added tax and sometimes low cost shipping. With online reviews, such as Amazon and others, it's frequently easier to sort between competing products. So even though Circuit City is gone, their real competition has not gone away.

If I'm more bullish on Best Buy's long-term prospects than our Foolish Sith Lord, it's because the Web isn't a perfect retail experience and Best Buy's bricks-and-mortar competition in traditional electronics such as TVs, stereos, and appliances is weak. Circuit City is just one piece of a well-worn puzzle.

Insiders aren't explicitly making the same case, and their actions are, well ... confusing. A large number of open market sales, mixed with planned and options-fueled sales, strike a bearish pose, especially when balanced against two good-sized but comparatively small purchases over the past year. More recently, board member Gerard Vittecoq has been buying small chunks of stock on a predetermined schedule.

I've never understood planned buying as a strategy, and I don't get it here, either. My advice, then, is to focus on why the analysts at our Million Dollar Portfolio own shares of Best Buy: because it's an enduring business trading at a good price.

Do you agree? Disagree? Log into Motley Fool CAPS today and tell us how you would rate Best Buy.

And if you want me to take a Foolish peek at the insider action of your favorite stock, email me here or use the comments box below. I'll write this column as often as you, our readers, demand.

Get more of the inside scoop with related Foolishness:

Amazon, Apple, and Best Buy are Stock Advisor selections. Microsoft, Best Buy, and Wal-Mart are Inside Value picks. Try any of our Foolish newsletter services free for 30 days.

Fool contributor Tim Beyers is a member of the market-beating Rule Breakers stock-picking team. He had stock and options positions in Apple 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 Best Buy and is also on Twitter as @TheMotleyFool. The Fool's disclosure policy has its eye on you.


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