7 Stocks You Should Be Worried About

Judging from the way the stock market has behaved over the first couple weeks of 2010, it seems as though most investors have put all the problems of the past two years behind them. Yet there's one group of important investors that appears to be getting out while the getting's good -- and you should pay close attention to what they're doing and why they're doing it.

The only bears left?
2009 was a tough year for stock market skeptics. Despite repeated calls that the market's rally was built on a weak foundation of junk stocks, upward market momentum asserted itself throughout the year and has thus far carried over into 2010. Those who sat on the sidelines waiting for a seemingly inevitable correction paid the price as they languished in low-rate cash investments.

Now, nearly everyone seems to believe that stocks have nowhere to go but up. Three separate polls of investor sentiment show some of the most bullish readings since before the financial crisis struck. In the face of such a strong consensus, there's a lot of pressure for people who aren't fully invested to buy stocks before it's too late.

In contrast, there seems to be only a single contingent of shareholders who are selling shares right now. In many cases, though, they're selling off a lot of their shares -- and taking a big chunk of their money off the table.

Selling CEOs
Here are some of the company CEOs who have made substantial sales of shares in just the first two weeks of 2010:

Company

CEO

Dollar Value Sold

Sale as % of Shares Owned

ATP Oil & Gas (Nasdaq: ATPG  )

Paul Bulmahn

$17.26 million

12%

CME Group (Nasdaq: CME  )

Craig Donohue

$5.08 million

35%

Qualcomm (Nasdaq: QCOM  )

Paul Jacobs

$4.37 million

10%

MasterCard (NYSE: MA  )

Robert Selander

$3.64 million

12%

Blackboard (Nasdaq: BBBB  )

Michael Chasen

$2.17 million

43%

Source: Yahoo! Finance.

In addition, other high-ranking executives have made major sales. Both of the co-chairmen of Bed Bath & Beyond (Nasdaq: BBBY  ) reported major sales of shares over the past week. One Ford Motor (NYSE: F  ) group vice president, Thomas Brown, sold nearly his entire stake in the company for just over $3 million, leaving him with just a $500,000 investment in Ford stock.

Going down?
Of course, there are a variety of reasons why executives choose to sell shares, and not all of them are signs of imminent doom for their companies. Because executives often receive compensation in stock or options, they can end up with dangerously high concentrations in company stock. From a personal financial planning perspective, those concentrations aren't ideal, and so diversifying one's portfolio to spread out risk makes a lot of sense. With the exception of Mr. Bulmahn, the executives in the table above all had what's called a 10b-5 plan in place to sell shares over an extended period.

Moreover, insiders have to report all affiliated transactions, even when they themselves don't necessarily have control of them. With Bed Bath & Beyond, for instance, the sales were made by related charitable foundations, not the executives themselves.

In many cases, though, insider sales are a troubling sign. Generally, no shareholder wants to see someone who has intimate knowledge of a company cashing out. And given the timing of these sales, it's entirely possible that executives have wanted to sell for some time but chose to wait until the beginning of the year for tax purposes. By doing so, they've deferred the income tax on any gains from their stock until they file their 2010 tax returns next year.

Wait and see
By itself, a sale by a company executive doesn't necessarily mean the stock is going to go down immediately. But insider sales do warrant closer attention. If you own a stock whose executives are selling their holdings, be particularly vigilant about possible shortcomings of the company. Unless you can come up with an explanation for why an insider is dumping shares that doesn't reflect badly on the company, you might do well to follow that insider's lead and sell your own shares.

Afraid the market will start falling again? Learn from Foolish options expert Jeff Fischer about how you can profit whether you're a bull or a bear.

Fool contributor Dan Caplinger takes pride in being more of an outsider than an insider. He doesn't own shares of the stocks mentioned in this article. Bed Bath & Beyond and Ford Motor are Motley Fool Stock Advisor picks. Blackboard is a Motley Fool Hidden Gems selection. The Fool's disclosure policy leaves you nothing to worry about.


Read/Post Comments (12) | Recommend This Article (19)

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.

  • Report this Comment On January 14, 2010, at 12:40 PM, hiddenflem wrote:

    Regarding the timing of the ATPG sale, this post was insightful: http://boards.fool.com/Message.asp?mid=28223932

    perhaps companies should disclose race horse addictions of their executive officers in their annual reports?

  • Report this Comment On January 14, 2010, at 1:03 PM, DSS1K wrote:

    Your analysis of Ford seems off the mark given what's listed on MFFAIS. Please provide empirical substance to your claims about Brown that contradict what's listed. According to the MFFAIS listing for F, you'll see the transactions for Brown counter what you argued (i.e. "One Ford Motor (NYSE: F) group vice president, Thomas Brown, sold nearly his entire stake in the company for just over $3 million, leaving him with just a $500,000 investment in Ford stock"). Do have it backwards??? The MFFAIS board reported on 1/08/10 that Brown BOUGHT 313,986 shares ($3,670,496) and sold 46,323 shares ($541,516). Source: http://www.mffais.com/f

    What's your incentive to provide 0 empirical evidence of your claims and are you able to counter the information provided herein?

    Please stop publishing this nonsensical rubbish if you're unable to counter the MFFAIS data!

    DSS1K

  • Report this Comment On January 14, 2010, at 2:35 PM, BioBat wrote:

    DSS1K,

    Unless the MFFAIS is all of a sudden wrong - you're right. This article seems pretty much completely off the mark.

    Ford has been seeing tremendous insider buying from the Ford group vice-presidents Brown, Leitch, Ojakli and Smither (>$10 million worth in shares bought vs ~2 million sold) over the past couple of weeks.

    Ford's also adding 1000 jobs in Detroit as it expands its electric vehicle division.

    Does that sound like a sinking ship to you?

  • Report this Comment On January 14, 2010, at 3:16 PM, PSU69 wrote:

    Long of F. Author's should have a reasonable responsibilty to confirm facts and cite valid references? Opinion if fine, yet reading for insight is improved if facts and on firm footing.

  • Report this Comment On January 14, 2010, at 4:19 PM, DSS1K wrote:

    BioBat:

    Agreed. I think Caplinger really bungled the info on Ford...but, hey, what do I know other than the facts I encounter!

  • Report this Comment On January 14, 2010, at 4:33 PM, TMFGalagan wrote:

    DSS1K -

    I used the actual SEC filing, linked here: http://www.sec.gov/Archives/edgar/data/37996/000120919110002...

    Brown exercised options on 267,663 shares and immediately sold them at the higher market price, leaving him with just 46,323 shares remaining.

    best,

    dan (TMF Galagan)

  • Report this Comment On January 14, 2010, at 8:01 PM, Fool wrote:

    Fool should make sure the facts of any article it publishes are checked and doublechecked.

    The statement regarding Ford insider selling is not true and should have never been allowed to be printed.

    A proper retraction would be the right thing to do.

  • Report this Comment On January 15, 2010, at 12:39 PM, DSS1K wrote:

    Ron:

    Fair enough and I stand corrected: Brown exercised his option on 267.7K shares. That's reasonable on Brown's end since the full value option was set to expire in 2013 (he was issued these shares in 2003 when the pps was $7.55). However, Brown still KEPT 5o,ooo ($5.8M at today's pps) shares in the end. Also, I would expect more shares to be issued to him in the future assuming he earns it. Regardless, the doom & gloom language you use ("not all of them are signs of imminent doom"), though spun in a back-handed manner to SEEM positive, is unnecessary unless you can support it with better evidence. Your case would be stronger, for example, if all or most of the UPPER-level execs were selling, but you're talking about a mid-level exec, Thomas Brown (Group Vice President, Purchasing), selling off part of his shares. But, as far as I know, the others are not selling.

    The point is that you do not know the reasons why executives choose to sell shares, but lay out a bunch of speculation about executive motivations ("oh, they're selling because they know something's up and it's BAD"). I doubt journalists have much impact on retail investor behavior and maybe the 4% drop in Ford's stock price (from a recent peak of $12+ to $11.6) is because folks think Brown's sale is a harbinger of decline. Who knows! But the implication is that journalists' accounts are far easier to access and understand than are SEC filings.

    I found these comments interesting regarding the strike price and having to exercise options:

    "Thomas Brown is guaranteed to have more options issued to him next year at a strike price that has a time & date he must act on..this is not the last time Thomas Brown will be paid using stock options..

    BTW it's a little unfair for the Motley Fool people to look at him because his shares are owned in a pool of shares held by Second Curve Capital, LP, of which Thomas Brown is a 10% owner."

    Source: http://messages.finance.yahoo.com/Business_%26_Finance/Inves...

    SEC info cited: http://www.secform4.com/insider-trading/1378438.htm

    Thanks,

    DSSK1

  • Report this Comment On January 15, 2010, at 12:42 PM, DSS1K wrote:

    Sorry...Brown's current holdings value is $580K

    DSSK1

  • Report this Comment On January 19, 2010, at 8:59 AM, TMFBent wrote:

    The BBBB stuff is a bit off. Those sales are coming via a 10b5-1 trading plan adopted in May of 2009.

    http://www.sec.gov/Archives/edgar/data/1106942/0001209191100...

  • Report this Comment On January 19, 2010, at 3:46 PM, bellaireinvestor wrote:

    You publish a "buy" BBBB recommendation on 1/15/10 on your Motley Fool Stock Advisor newsletter and in this article you slander the stock (published 1/14/10) advise to be worried because the CEO sells some stock. Which side of your mouth is Motley talking out of today?

  • Report this Comment On January 20, 2010, at 2:38 PM, chriscuster wrote:

    I am pissed that I took David's suggestion and bought a bunch of BBBB stock, only to see the stock take a nose dive and now reading that The Fool is now trashing BBBB. I think David and Tom need to take some responsibility for their actions and mis-actions.

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