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Is Monsanto (NYSE: MON ) headed higher, or lower? That's the question we ask when we evaluate insider buying and selling. We ask because the way that executives spend their paychecks often reflects what they think of their companies' prospects.
Of course, not all buys are equal. According to two decades' worth of research from Dr. H. Nejat Seyhun, compiled in his book Investment Intelligence from Insider Trading, buying is most predictive when it (a) comes from the CEO or other top-level executive, and (b) comes in bulk. Seyhun found that buys between 10,000 and 100,000 shares were the most informative.
How do Monsanto's managers measure up against Seyhun's benchmarks over the past year? See for yourself:
|Insider Rating||Bullish: Buying near recent levels and higher, and in greater bulk than equivalent sales.|
|Business Description||A global provider of agricultural products for farmers.|
|CAPS Stars (out of 5)||****|
|Percentage of Shares Owned by Insiders||0.38%|
|Net Buying (Selling)*||$3.36 million|
|Last Buyer (% Increase)||Hugh Grant, Chairman, President, CEO
37,500 shares at $52.06 apiece on July 13, 2010
(Increased direct holdings by 9%.)
|Last Seller (% Decrease)||Steven Mizell, Exec. VP of Human Resources
600 shares at $52.24 apiece on Oct. 12, 2010
(Reduced direct holdings by 2%.)
|Competitors||DuPont (NYSE: DD )
Martek Biosciences (Nasdaq: MATK )
Origin Agritech (Nasdaq: SEED )
Sources: Form 4 Oracle, Capital IQ, and Motley Fool CAPS. (Data current as of Oct. 14.)
*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, they're buying and selling their personal holdings.
These 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: bullish
What's the role of genetically altered superfood in a society that's going organic, and allowing the likes of Whole Foods (Nasdaq: WFMI ) to grow revenue and by 12% annually over the past three years? Honestly, I'm not sure. I'll admit my bias to organics up front; our eldest son suffers from celiac disease and a wide range of severe food allergies.
But there's more than genetic engineering at play when it comes to Monsanto's image. The company has been cooperating with a Justice Department investigation into its competitive practices, even as the underlying business continues to perform well.
"Basically if you want the highest crop yield possible you have to use their seeds," wrote All-Star investor turtle286 in August, when the stock was trading for 8% more than it is today. "While farmers hate them for that, unless you're willing to chance disease and crop loss they have a guaranteed source of revenue. Priced this low I really can't see much downside."
Executives would appear to agree with this Fool's bullish thesis. In July, CEO Hugh Grant bought 37,500 shares at prices not far removed from today's. By comparison, the insider sellers haven't sold much. Considering Monsanto's competitive position in an industry that's basic to sustaining human life, there's really no reason to.
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