The Smart Money Says to Sell Apple

Is Apple (Nasdaq: AAPL  ) 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 (a) it 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 Apple's managers measure up against Seyhun's benchmarks over the past year? See for yourself:

Insider Rating Bearish
No buys and several sales by multiple insiders.
Business Description One of the world's leading makers of consumer electronic devices.
Recent Price $315
CAPS Stars (out of 5) ***
Percentage of Shares Owned by Insiders 0.72%
Net Buying (Selling)* ($48 million)
Last Buyer (% Increase) No purchases in the last 12 months.
Last Seller (% Decrease) Arthur Levinson, Ph.D., Director
15,000 shares at $307 apiece on Nov. 2, 2010
(Reduced direct holdings by 6%.)
Competitors Dell (Nasdaq: DELL  )
Microsoft (Nasdaq: MSFT  )
Nokia (NYSE: NOK  )

Sources Form 4 Oracle, Capital IQ, and Motley Fool CAPS. (Data current as of Nov. 26.)
*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
Apple is a polarizing stock. Most Fools who've rated the stock in Motley Fool CAPS say it will outperform, but a significant number of our very best investors believe Apple will underperform.

"We've probably seen the highs for this ticker that will stand for some time. Sales are beginning to disappoint compared with very demanding forecasts. Competition is not only catching up but actually grabbing share from this overhyped retail outlet of some old tech repackaged products ... I see the stock price consolidating to $250 or less in the next six months," wrote All-Star investor OnyongJun last week.

I'm not sure that's fair. Overhyped retail? Repackaged products? Look, I get that Apple didn't invent the MP3 player, smartphone, or tablet computer. But in every case, the products the Mac maker ultimately introduced have pleased consumers in ways no competitor has matched. That's got to be worth something.

In some cases, it's the small things that separate Apple from its rivals. Consider the iPad. Samsung may have sold 600,000 of its new, highly functional Galaxy tablets in its first 30 days of release, but that's 400,000 less than the number of Wi-Fi iPads Apple sold in the device's first month on the market. The iPad's spacious 9.5-inch screen appears to have made the difference. If so, Research In Motion's (Nasdaq: RIMM  ) 7-inch PlayBook is a dud in the making.

Mix in a still-attractive valuation, and all signs point to today's Apple investors -- including (points two thumbs inward) this guy -- enjoying superior returns over the next two to three years. All signs except for one: insiders selling millions of dollars worth of Apple stock.

I'm not worried, though. Apple issues millions of shares each year for compensatory purposes. If insiders are selling, it may indicate nothing other than a desire to cash in bonus compensation. And even those who have sold haven't closed out their positions entirely. Board member Arthur Levinson parted with just 6% of his stake when he sold 15,000 shares earlier this month. Wake me when he sells 30% or more of his iHoldings.

Do you agree? Disagree? Log into Motley Fool CAPS today and tell us how you would rate Apple. 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, reply to me on Twitter, or use the comments box below. I'll write this column as often as you, our readers, demand.

Microsoft is a Motley Fool Inside Value pick. Apple is a Motley Fool Stock Advisor selection. Motley Fool Options has recommended subscribers open a diagonal call position in Microsoft. Try any of our Foolish newsletter services free for 30 days.

Fool contributor Tim Beyers is a member of the Motley Fool Rule Breakers stock-picking team. He had stock and options positions in Apple at the time of publication. Check out Tim's portfolio holdings and Foolish writings, or connect with him on Twitter as @milehighfool. You can also get his insights delivered directly to your RSS reader. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool owns shares of Apple and Microsoft and is also on Twitter as @TheMotleyFool. Its disclosure policy has its eye on you.


Read/Post Comments (28) | Recommend This Article (10)

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 November 29, 2010, at 10:35 AM, hellomojo wrote:

    yeah... Apple is still a buy in my eyes. Products are becoming a hit in China; Verizon iPhone next year ; and 50 Billion in cash to cherry pick technology and companies to integrate. They have a good 3 - 5 year run left in them before the stock stalls out...

  • Report this Comment On November 29, 2010, at 10:44 AM, pc2osx wrote:

    Insider sales at Apple are most likely due to fear of much higher tax rates next year if Dems don't wake up.

  • Report this Comment On November 29, 2010, at 10:57 AM, Henry3Dogg wrote:

    The smart reader says stop reading Motley Fool

  • Report this Comment On November 29, 2010, at 11:03 AM, bobringer wrote:

    Who actually writes an article based on quotes from a guy like OnyongJun?

    His "picks" have SIGNIFICANTLY underperformed the market in just about every single case.

    He says "sales are beginning to disappoint."

    At that point, wouldn't you stop reading him with an analytical eye and think this guy must be a comedian?

    Also, about that "old tech repackaged products." That should have just made you laugh harder.

    On his own comments page, he goes on about how Jobs is appearing on stage less and less, which again... is laughable. Almost sounds like the guy is wishing for Jobs demise.

    And THIS is the guy you pick to quote when talking about the "Smart Money"???

    It went from being one dumb guy... to two by perpetuating the lunacy.

  • Report this Comment On November 29, 2010, at 11:05 AM, InspectorT wrote:

    RealMillerMan says "The Playbook is a way better product than the iPad."

    Just wondered where he bought his Playbook so his judgment would have some basis in reality.

    Oh, that's right. It hasn't been released yet. It might be released sometime next year about the same time as iPad 2 comes out.

    By the way, I am neither a Grandma nor a kiddie, and I own an iPad and think, based on actual use, that the iPad is a terrific piece of electronics with a screen actually large enough to be useful.

  • Report this Comment On November 29, 2010, at 11:12 AM, SkippyJohnJones wrote:

    @RealMillerMan - have you ever touched a Playbook? Do you anticipate that the current version of iPad will exist in perpetuity? My guess is that Playbook comes out within a couple weeks (either direction) of iPad2. Apple updates every product every year.

    Also, I'm not sure how you differentiate between "serious tablet users" and "Grandma's and kiddies," as Apple currently has 95% of the tablet market. I'll take the 95% share and accompanying profit, you take the pride that comes with a serious product.

    Finally, on your infallible product, did you know that it is WiFi only, unless you want to tie it to a Blackberry? How do you think it will do against the 2011 Android/Chrome offerings with the same feature set and no extra equipment required? Or an iPad with updated screen and processor, as well as the cameras that everyone seems to think are missing? Do you think it will do better on margin, volume or both? My guess is neither.

  • Report this Comment On November 29, 2010, at 11:13 AM, irast wrote:

    The authors analysis seems reasonable, in that it does challenge OnyongJun, but what is particularly troubling is the "catchy" headline. Even the auther doesn't believe that now is the time to sell, yet the title "for sensational reasons" suggests just that.

    Not very good journalism at all. Full Disclosure, I am long on Apple, and do believe that things will only get better during 2011 as the i{hone gets released on the Verizon Network, a new iPad is released, a new iPhone 5 released in July ish, and the tremendous growth potential especially in China.

    Let's wait and see,

  • Report this Comment On November 29, 2010, at 11:13 AM, JKramarz321 wrote:

    To gauge the reliability of this metric, you can look back and find insiders selling at all sorts of prices, and read stories pointing out this selling with the same suspicions.

    Look at insider selling in Summer of 2009! Big names in Apple sold in the $150's.

    Should we have taken a cue from them?

    Realize too, if they sell based on any inside information, that is illegal, so they may forfeit their entire gain.

    Sometimes though, insider trading can be a bad sign, like we say at Gateway, where the founder was selling every block of 5,000 shares he would find under the couch cushions or in the backseat of his car! (or so it seemed!)

  • Report this Comment On November 29, 2010, at 11:54 AM, BMWTwisty wrote:

    Yeah, yeah, the same loony logig demonstrated when you said sell three years ago. Sheesh. You really don't have a clue what Apple is doing. The "smart money" here just h'aint too swooft...

  • Report this Comment On November 29, 2010, at 11:55 AM, JKramarz321 wrote:

    as far as the "grandmoms and kiddies" comment,

    the average family has 2 kiddies, and those kiddies might have 2 grandmoms. The family's main paycheck probably comes from just one CEO.

    Sounds like the Gmoms and kids are a 80% market share versus your 'serious users'.

    Good luck explaining stories like this too:

    http://fairerplatform.com/2010/05/canadian-hospital-going-ip...

  • Report this Comment On November 29, 2010, at 12:34 PM, SpeechRec wrote:

    I agree with @pc2osx : "Insider sales at Apple are most likely due to fear of much higher tax rates next year if Dems don't wake up."

    Which is the same reason many companies have issued special dividends towards the end of 2010.

    And LOL @ bobringer's :

    "OnyongJun... says 'sales are beginning to disappoint.'

    At that point, wouldn't you stop reading him with an analytical eye and think this guy must be a comedian?"

  • Report this Comment On November 29, 2010, at 1:12 PM, iphoney wrote:

    Tim,

    You're kidding, right?

    Do you even believe your own conclusions and comments?

    Did you know that this sort of baseless reporting by bloggers that have no basis in fact but cause stocks like Apple to move up or down significantly are the basis of a new SEC investigation?

    Did you bother to get yourself educated before you wrote this garbage based on OnyongJun's lunacy?

    OnyongJun?

    You're kidding...right?

  • Report this Comment On November 29, 2010, at 2:43 PM, feather70 wrote:

    Thanks to everyone for your comments, as after reading this article I was feeling a little bit horrified. The price of Apple finally dipped a bit today, so I decided to jump in. I'm pretty new at this and wondered if I'd just made my first error. My decision to buy was based on lots of research, and after much waffling I just wish I'd done it sooner. I do think it will end up being at least a few more years of serious growth for Apple. They make the best products, in terms of interface and usability, and have a wide loyal customer base that seems to be growing abroad. Hell, if we can sell American products to China and work off some of that trade deficit, it's got to be worth something! Same deal with Ford - sales abroad are driving quite a lot of that growth, even if we still don't see a ton of Fords driving around here in CA.

  • Report this Comment On November 29, 2010, at 3:19 PM, sewdog wrote:

    Basing a SELL recommendation on suc a miniscule sampling is ridiculous. One director sells 6% of his holdings and that means we should cash out?

    Furthermore, Apple will earn something like 21.00 per share in 2011, giving the stock a current p/e of just 15, in line with the market's p/e and far below the stock's anticipated future earnings growth rate. Strip out the cash that Apple holds and that currently acts as a drag on earnings since the return on short term cash is about zero, and the stock become even less expensive. Sell now? Just before APPL has the biggest quarter in the company's history? Not me, pal.

  • Report this Comment On November 29, 2010, at 3:40 PM, TMFMileHigh wrote:

    Thanks, everyone. I appreciate the comments very much. However, can I ask that you read the story before jumping in?

    This story is neither a recommendation to sell nor an analysis based on the take of one highly-rated CAPS investor. Instead, what you have before you is my read of the insider action at Apple. Nothing more. Nothing less.

    Thanks again and Foolish best,

    Tim (TMFMileHigh and @milehighfool on Twitter)

  • Report this Comment On November 29, 2010, at 3:55 PM, bobringer wrote:

    If OnyongJun is considered a "highly-rated CAPS investor" then you guys need to seriously reconsider what "highly rated is."

    His comments on Apple make it clear that his "smart money" recommendation is completely without merit.

    His CAPS portfolio performance makes it CRYSTAL clear the "smart money" tag is meaningless.

    So... we DID read the article. And while I appreciate your response... the comments stand. The idea that you'd use anything that guy says in an article about "smart money" makes it hard to take anything else in the article seriously.

  • Report this Comment On November 29, 2010, at 4:28 PM, iamtellingu wrote:

    SELLLLLLLLL all your AAPL so I can buy more.. please... I only have a couple thousand shares!!! I want to be like the hedge fund guys to own millions of shares.....

  • Report this Comment On November 29, 2010, at 4:34 PM, TMFMileHigh wrote:

    @bobringer,

    >>His comments on Apple make it clear that his "smart money" recommendation is completely without merit

    "Smart money" refers to no one other than the insiders, since they know their business best. I can see how this wasn't made clear in the piece -- I'll correct for future editions.

    >>His CAPS portfolio performance makes it CRYSTAL clear the "smart money" tag is meaningless.

    Again, "smart money" refers to insiders.

    Re performance: you may dislike and disagree with his take on Apple -- I certainly do -- but citing his performance as evidence of shoddiness is just plain wrong.

    His CAPS portfolio has crushed the market and he's been accurate 61% of the time. More: http://caps.fool.com/player/onyongjun.aspx

    Thanks again and Foolish best,

    Tim (TMFMileHigh and @milehighfool on Twitter)

  • Report this Comment On November 29, 2010, at 5:00 PM, jargonsays wrote:

    I think the smart money is just saying that they can't hold all of their Apples without a dividend. They need some income.

  • Report this Comment On November 29, 2010, at 6:50 PM, isaquejr wrote:

    When the ipod and iphone went to market there was no competition whatsoever. Apple entered the market with innovative products that boosted the sales with the monopoly on those product ranges. Today is a lot different, iphone 4 is not a novelty nor a one of a kind product neither is the ipad. Samsung is really taking a big slice of the market and their products are as good (or even better, it depends on the person that makes the remark) as the apple's stuff. So my point is: apple is not going to grow much more, in my opinion it will contract. Don't underestimate the competition, the droids will conquer the market, it's a matter of time. The reign of Apple is over, and I'm not arguing about who got the better phone or tablet, I'm just saying that this arguing wouldn't happen three years ago.

  • Report this Comment On November 30, 2010, at 4:44 AM, luckyIguess wrote:

    The bear arguments for Apple are good, but honestly they sound almost exactly like the bear arguments from five years ago. Apple always has a trick up its sleeve and a new product (or more) on the drawing board.

    For the longest time I wouldn't admit it, but Apple knows what we want more than we do. Even if their products aren't "better" than the competition, they're certainly more desireable. Let's face it, Apple knows what we want better than we do.

    I'll sell when I see something change, but for now I'm holding.

  • Report this Comment On November 30, 2010, at 12:50 PM, louibee wrote:

    Apple continues to innovate, plus has one of the healthiest balance sheets. I can't find another company I would rather invest in long term.

  • Report this Comment On December 04, 2010, at 10:54 AM, whyaduck1128 wrote:

    I'm not an Apple product user. I'm not by any means high-tech. However, I think they make a quality product and have a terrific brand name. Their products SELL.

    Name, product, sales, profits, balance sheet, all good. That's why I have a few shares.

  • Report this Comment On December 04, 2010, at 11:18 AM, investchief wrote:

    Apple is a great company, with great products. but AAPL has had a huge rid since 2009 and the price will need to come down eventually after a run like this. it is just the reality, after a very popular stock skyrockets it will eventually need to come down and balance out.

    check out my investment blog: http://investchief.blogspot.com/

  • Report this Comment On December 04, 2010, at 11:03 PM, kwjegraham wrote:

    Using a conservative growth (EPS) of 16% I figure the per share price should trade slightly higher than $500. I see no reason to think it is overpriced at this time.

  • Report this Comment On December 06, 2010, at 2:47 PM, isaquejr wrote:

    What! 500$ !! And a market price above 450B... of course, almost 30% higher than Exxon Mobil, the largest company by market value. It makes perfect sense.

  • Report this Comment On December 13, 2010, at 8:25 PM, websterphreaky wrote:

    PLEASE stop calling Apple the "Mac maker" (or "maker" of ANYTHING!)

    I'm getting very tired of writing this FACT - Apple HASN'T MADE ANYTHING WITH THEIR NAME ON IT SINCE 1980 when they farmed out the Apple ][e to Canada!

    Since then, EVERYTHING has been made by low bid contractors in Korea, Japan, Taiwan, Singapore, Indonesia, Ireland and now since 2001 EVERYTHING in Commie Chinese Sweatshops!

    GOT IT!!??

  • Report this Comment On December 29, 2010, at 12:05 PM, xmmj wrote:

    "We've probably seen the highs for this ticker that will stand for some time. Sales are beginning to disappoint compared with very demanding forecasts. Competition is not only catching up but actually grabbing share from this overhyped retail outlet of some old tech repackaged products ... I see the stock price consolidating to $250 or less in the next six months," wrote All-Star investor OnyongJun last week.

    The above quote shows what happens when one lets one's personal taste interfere with one's economic judgement. If you hate Apple or their products, that is your personal decision. If you then make economic predictions based on your own bias - well that is truly foolish!

    As soon as you see language like "overhyped retail outlet of some old tech repackaged products ..." you should discount the opinion entirely. It is the language of a fanatic who lives in a little bubble totally devoid of reality.

    Look where the stock is today. I will happily buy some from OnyongJun for $250, heck I'll give him $270 and he can make a $20 profit! [current price $325+]

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