Stocks to Avoid Now?

If you're thinking of selling your stocks, you're not alone. According to insider tracker Form 4 Oracle, executives at these three firms cashed in shares last week:

The week's selling

Company

Closing Price 3/12/09

Total Value Sold

1-Year Return

Heartland Payment Systems (NYSE: HPY  )

$4.25

$12,767,728

(79.6%)

Sears Holdings (Nasdaq: SHLD  )

$39.29

$8,703,036

(58.0%)

Equity Residential (NYSE: EQR  )

$21.11

$3,443,060

(40.5%)

Sources: Fool.com, Yahoo! Finance, Form 4 Oracle.

Insiders sell for many reasons, from compensation to estate or tax planning to just plain getting out, but they rarely share those motives with us. That said, the list above contains open market sales, made by executives who have 100% control over the timing of their trades. Not so at Amazon.com (Nasdaq: AMZN  ) and PG&E (NYSE: PCG  ) , whose insiders have mostly been cashing in on a predetermined schedule known as a 10b5-1 trading plan.

Firms typically find their way to this list because the sellers either (a) exhibit good timing, or (b) are dumping significant portions of their stakes. Sometimes it's neither. That's the case, once again, with Motley Fool Hidden Gems recommendation Heartland Payment Systems.

CEO Robert Carr joins Chesapeake Energy's (NYSE: CHK  ) Aubrey McClendon in the ranks of executives who've been forced to sell virtually all their holdings because of a margin call. Quoting from the footnotes in Carr's most recent filing with the SEC:

The dispositions of Common Stock of Heartland Payment Systems, Inc. were effected pursuant to forced sales by a financial institution to meet obligations under a loan for which the shares were pledged as security. The total number of shares reported as sold on this Form 4 is 3,693,259. [Emphasis added.]

Ouch. My sympathies, sir.

Another Sears shopper leaves the store
Unfortunately, margin can't explain why Dune Capital's Steve Mnuchin got rid of the vast majority of his company's stake in Sears recently. Mnuchin sold 238,711 shares of the 250,000 Dune Capital owned prior to Monday. (Other shares he controlled were distributed to third parties affiliated with Dune Capital, according to an SEC filing.)

The sales are troubling for two reasons. First, they follow earlier sales by other professional investors who previously bet big on a turnaround at Sears Holdings. Second, Mnuchin is not only a Sears director, but also a graduate of chairman Eddie Lampert's firm, ESL Investments.

And let's not forget the thesis for Sears. Bargain hunters aren't betting on the stock to attract good traffic to its stores, like Wal-Mart Stores (NYSE: WMT  ) does. To the contrary, they expect Sears to sell valuable land, close stores, and return capital to shareholders.

Seems like a fair bet for the very long term. But for right now? I'm not so sure. Neither, apparently, is Mnuchin. Nor is our 130,000-strong Motley Fool CAPS community:

Metric

Sears Holdings

CAPS stars (out of 5)

**

Total ratings

2,156

Percent bulls

74.3%

Bullish pitches

309 out of 420

Data current as of March 13, 2009.

"Too much competition," wrote CAPS All-Star xeaglekeeper earlier this week. "The Craftsman brand isn't what it use to be. The product is overpriced, cheap, and unreliable. The kenmore brand is good but LG and others are taking over the market. They make good garage door openers though."

I'm not sure product quality is an issue for Sears -- I own most of these brands, and they work fine for me -- but at the very least, repeated selling calls into question the quality of the underlying stock.

There's your update. See you back here next week for more stocks you should avoid.

Get the inside scoop on stocks of all sizes with related Foolishness:

Amazon is a Stock Advisor selection. Heartland Payment Systems is a Motley Fool Hidden Gems pick. Chesapeake Energy, Sears Holdings, and Wal-Mart are Inside Value picks. Try any of these market-beating services free for 30 days.

Fool contributor Tim Beyers also writes for Motley Fool Rule Breakers. Tim didn't own stock in any of the companies mentioned in this article at the time of publication. Check out his portfolio holdings and Foolish writings, or connect with him on Twitter as @milehighfool.

The Motley Fool is also on Twitter as @TheMotleyFool. Its disclosure policy is the undisputed heavyweight champ among disclosure policies.


Read/Post Comments (2) | Recommend This Article (36)

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  • Report this Comment On March 13, 2009, at 3:02 PM, imalost wrote:

    One of the companies you want to bail out of now is Amazon. It has gone 100% since November even as the market has gone down. It will have zero to negative growth this year and its selling at a whopping PE of almost 50, PEG over 2 and 10 times book value. They even warned that their earnings could drop as much as 37% in the first quarter. This stock has been hyped to no end. But think of it this way. At current earnings of $1.47 it would take 50 years for you to recoup your investment through them. The Amazon insiders crank the PR machine when its time to sell their stock. Have you seen any insiders pusrchase the last two years, the answer is no. We are in a severe recession how welll do you think an e-tailer will do in this environment ? Would you pay 50 times earnings for zero growth ?

  • Report this Comment On March 13, 2009, at 3:19 PM, speeddaimon wrote:

    So the fool is recommending Heartland Payment Systems huh? If my understanding from this consumerist.com article http://consumerist.com/5159047/another-month-another-massive... is correct. Not only did this poorly run trash heap of a company "lose" consumer information, they also made sure that both me and my wife got to get new debit cards because our numbers were some of those comprimised.

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