interactive.wsj.com
June 27, 2001
Inside Track
Corporate Insiders Shed Their Shares
As Quarterly Profit Warnings Escalate
By CASSELL BRYAN-LOW
Staff Reporter of THE WALL STREET JOURNAL
Insider sentiment turned noticeably more bearish in May and June, just as
corporate America was poised to flood investors with earnings warnings
for the second quarter.
While general investor sentiment improved during April and May, triggering
a stock-market rebound, corporate executives and directors were quick to
lock in those gains. The selling signals "that insiders were expecting more
bad news," says Jonathan Moreland, research director at Edgar Online
Inc.'s InsiderTrader.com, which tracks insider purchases and sales.
The selling, combined with a lack of
broad-based insider buying, indicates that
insiders across a range of industries don't
expect their stock prices to see a sustained
improvement soon, Mr. Moreland says.
Insiders don't appear to be "betting on a
summer rally," he says.
In recent weeks, investors have been deluged by companies warning of
missed earnings targets, as companies realize economic conditions have
deteriorated more sharply than they anticipated. Already 587 companies
have issued profit warnings this quarter, according to Thomson
Financial/First Call. Analysts predict this quarter's tally of warnings could
equal or possibly beat the record of 935 set in the first quarter.
Exodus Communications Inc. was
among those with gloomy news. Last
week, the Santa Clara, Calif.,
Web-hosting concern warned its
results would be lower than
expected, sending the stock down
30%. Just weeks earlier, Chief
Executive Ellen Hancock and two
other insiders sold a combined $4.2
million of shares, according to
Thomson. The sales occurred May 2
through May 30 at prices of
between $7.88 and $10.50 apiece.
Tuesday, Exodus fell two cents to
$2.11 at 4 p.m. in Nasdaq Stock
Market trading.
Exodus, whose insiders have had
good timing in the past, declined to
comment on the reason for or timing
of the sales.
Overall, the volume of insider sales jumped in May, having dropped off
substantially the prior two months, says Lon Gerber, director of research
at Thomson Financial/Lancer Analytics, which compiles insider-trading
data. In dollar terms, the sell-to-buy ratio in May was $34 sold for every
dollar bought, the highest, or most bearish, since the firm began tracking
the data in 1996, and twice as high as March and April, when the ratios
were 14 to 1 and 16 to 1, respectively.
Sales by corporate insiders typically outweigh purchases, largely because
so much of corporate compensation now is in the form of stock and
options. Still, that insiders ramped up their sales following the stock
market's spring rally indicates "they weren't confident that the rebound
would continue," Mr. Gerber says.
While complete data for June aren't in -- insiders aren't required to report
their transactions until the 10th day of the following month -- analysts say
sentiment has turned more bearish in recent weeks. According to Vickers
Weekly Insider newsletter, the eight-week ratio of sales to purchases
stands at 3.96 weekly transactions, indicating sales for every one indicating
a purchase. By last week, that ratio jumped to 7.27 to 1. That is "a very
bearish indication of [the insiders'] outlook for the market in the
intermediate term," says David Coleman, the newsletter's editor.
On June 8, Juniper Networks Inc., a maker of Internet-switching gear,
lowered its earnings estimate and announced job cuts. In the first round of
sales at the Sunnyvale, Calif., company since October, CEO Scott Kriens
and two other insiders cashed in 787,463 shares for $45 million from April
17 to 30, at prices of $46.81 to $62.76 apiece, says Thomson. On
Nasdaq Tuesday, Juniper fell $1.01 to $29.49.
The sales were for "personal" reasons, said Juniper spokeswoman Randi
Paikoff Feigin. "Insiders were allowed to trade shortly after we reported
our strong first-quarter results," on April 12, she said. "If the insiders had
insight into the fact that we would have to revise down, they wouldn't have
sold shares."
Sales at New York bank J.P. Morgan Chase & Co. also look prescient.
Between April 19 and May 22, five insiders, including Chairman Douglas
Warner III, sold 444,521 shares for $21.9 million, at between $46.76 to
$50 a share, in the first large round of insider sales since August, says
Thomson Financial. On June 5, J.P. Morgan said a weak market
environment continues to "adversely" affect revenue opportunities for its
investment bank and trading-related revenue. The company declined to
comment on the reason and timing of the sales. On the NYSE Tuesday,
J.P. Morgan shares fell $1.14 to $44.68.
Write to Cassell Bryan-Low at cassell.bryan-low@wsj.com
KJC |
