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Is EMC (NYSE: NKE ) 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) is performed in bulk. Seyhun found buys of between 10,000 and 100,000 shares to be most informative.
How do EMC's managers measure up against Seyhun's benchmarks over the past year? See for yourself:
|Insider Rating||Bearish: High volume sales over a sustained period, including several at or near current prices.|
|Business Description||A leading supplier of data storage software and equipment.|
|CAPS Stars (Out of 5)||****|
|Percentage of Shares Owned by Insiders||0.34%|
|Net Buying (Selling)*||($23.4 million)|
|Last Buyer (% Increase)||None over the past 12 months.|
|Last Seller (% Decrease)||Frank Hauck, EVP, Customer Experience
16,500 shares at $21.17 apiece on Oct. 26, 2010
(Reduced direct holdings by 3%.)
|Competitors||Hitachi (NYSE: HIT )
NetApp (Nasdaq: NTAP )
Quantum (NYSE: QTM )
Sources Form 4 Oracle, Capital IQ, 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: Bearish
When it comes to tech stocks, few sectors are hotter than data storage. In recent days, speculators have lifted shares of many of EMC's peers and competitors. Quantum surged 11% yesterday, and Isilon Systems (Nasdaq: ISLN ) is up almost 12% since news broke on Oct. 5 that the company is shopping for an acquirer.
EMC, too, has been the subject of buyout speculation. Two weeks ago, rumors surfaced that Oracle (Nasdaq: ORCL ) would bid for the company. I find such a deal unlikely for a number of technical and business reasons. Most of all, I can't see Oracle CEO Larry Ellison issuing tens of millions in new shares. Historically, cash has been his preferred currency for acquisitions.
On its own, EMC appears fairly valued on an earnings basis. A 17 forward P/E ratio is roughly in line with the long-term growth rate analysts expect EMC to achieve, according to data at Yahoo! Finance.
Fair price or not, insiders are selling well beyond what they're getting from exercised options. EMC Executive Vice President Frank Hauck recently sold 16,500 shares, within a day of selling 234,444 other shares acquired via options.
Fools nevertheless consider EMC insiders' selling to be a minor annoyance. "[Owns] 85% of VMware (NYSE: VMW ) , a stable and soon to be growing market outside of that particular enterprise, and an absolutely stellar balance sheet, including more than twice as much cash as debt," wrote All-Star investor Geofiz in August.
Do you agree? Disagree? Log into Motley Fool CAPS today, and tell us how you would rate EMC. 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.
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