I have a tradition on Saturday morning. After I wake up and see what everyone wants in their omelets, I read Barron's online version, always starting with the Insider Transactions segment. And this Saturday morning, it looked like retail insiders were busy last week. Let's take a look at what happened and what it might mean.
The sellers
According to the Barron's data, insiders at Guess? (NYSE:GES), American Eagle Outfitters (NASDAQ:AEOS), Kohl's (NYSE:KSS), and Dick's Sporting Goods (NYSE:DKS) all sold a bunch of shares recently.
Can you blame them? All of the aforementioned companies have been hitting on all cylinders over the last year. (See below for The Motley Fool's coverage of how they've been doing it.) As a result of their excellent performance, their stock prices have been making new 52-week highs.
Should we take anything from this data? Probably not. Insiders can sell for any number of reasons, and if options are ready to expire, then they could be forced to sell shares even if they don't necessarily want to. If you own shares, should you follow suit? Only if you feel that the stocks are overpriced relative to your valuation assessments.
The buyers
On the contrary, insiders at Friendly Ice Cream (AMEX:FRN), Blockbuster (NYSE:BBI), and Pep Boys (NYSE:PBY) were making purchases.
Should we take these purchases as a good signal? That's certainly open to interpretation, but it's usually a good sign. Blockbuster is in the process of reinventing itself, and the CEO apparently has confidence in his plan -- enough confidence to invest $1 million of his own money.
Pep Boys is also in the middle of a turnaround. The auto parts retailer has been struggling lately, and its board has gone through some changes as two activist investors, Barington Capital and Pirate Capital, have purchased big stakes (and apparently increased the size of those stakes) to push through some performance-improvement initiatives.
The Lion Fund, counseled by Biglari Capital, has been adding to its stake in restaurant and ice cream shop operator Friendly's. (This brings back memories of my family splitting a giant Reese's Pieces Sundae at the restaurant when I was a kid.) The group recently requested two seats on the board of directors to help get this company back to creating value for shareholders. Something tells me the relationship may not have started off very friendly.
The Foolish bottom line
I recommend keeping an eye on insider transactions, but only up to a point. I would never make a decision solely based on this data, but it does make for an interesting "jumping off point." By that, I mean it can kick-start you into deciding to do more research or not. For example, Blockbuster is one company that I have been studying a bit during its turnaround. This big insider purchase may give me a shot in the arm to pick up where I left off.
The Motley Fool has been covering the news surrounding most of these companies. Here's what we've been seeing:
American Eagle Outfitters is a Motley Fool Stock Advisor selection. Take the newsletter for a 30-day free spin.
Retail editor and Inside Value team member David Meier does not own shares in any of the companies mentioned. He is currently ranked 72 out of 13,432 investors in The Motley Fool's CAPS community intelligence stock-rating service. You can view his TMF profile here. The Fool takes its disclosure policy very seriously.
