Is MEMC Electronic Materials (NYSE: WFR ) headed higher or lower? That's the question we ask when we evaluate insider buying and selling. We ask because how executives spend their paychecks is often a reflection of 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) it's performed in bulk. Seyhun found buys of between 10,000 and 100,000 shares to be most informative.
How do MEMC Electronic Materials' managers measure up against Seyhun's benchmarks over the past year? See for yourself:
Multiple insiders bought in bulk over the summer. The stock is up more than 30% since, yet no executive has sold.
||A global producer of silicon wafers for the semiconductor industry.
|CAPS Stars (out of 5)
|Percentage of Shares Owned by Insiders
|Net Buying (selling)*
|Last Buyer (% increase)
Carlos Domenech, EVP and President, SunEdison
20,000 shares at $10.32 apiece on Aug. 11, 2010
(Added to direct holdings by 19%.)
|Last Seller (% decrease)
||None over the past 12 months.
First Solar (Nasdaq: FSLR )
LDK Solar (NYSE: LDK )
ReneSola (NYSE: SOL )
Sources: Form 4 Oracle; Capital IQ, a division of Standard & Poor's; and Motley Fool CAPS. Data current as of Oct. 27.
* 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: bullish
MEMC Electronic Materials is an interesting business that's partway steeped in helping chip makers make chips, and partway steeped in serving solar power to a nation drunk on foreign oil. Fools see it as a powerful combination.
"Now that MEMC has taken the drastic decision to produce solar power too, the company has become a very rare beast that controls solar panel installations from the raw materials and all the way up to collecting service revenue," my Foolish colleague Anders Bylund wrote in covering MEMC's unimpressive second-quarter earnings report.
Investors have been selling the stock in recent days, ahead of the third-quarter earnings report due Monday. A recent Deutsche Bank downgrade from "buy" to "hold" could be partly to blame for the sell-off. Insiders show no signs of having lost faith. If anything, prospects for MEMC's solar business have made them more bullish.
In August, Carlos Domenech, president of MEMC's SunEdison division, purchased 20,000 shares at just $10.32 apiece. The stock is up nicely since, but insiders haven't stopped buying.
Earlier this month, Chief HR Officer Scott Weisberg kicked off a new pre-programmed 10b5-1 buying plan, acquiring 12,300 shares for $12.11 each. I'm never one to buy blind in this way, but I also find it impossible to not admire Weisberg's faith in the value of the underlying business.
Do you think he's nuts? Brilliant? Log into Motley Fool CAPS today and tell us how you would rate MEMC Electronic Materials. You can also add the stock to your watchlist.
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.