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:

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.

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