Article on IGT
Insiders Pull the Lever and Sell Slot-Machine Makers
By Paul Elliott
Special to TheStreet.com
8/2/01 4:46 PM ET
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The great slot machine debate rages on, although two of its biggest players saw declines of more than 20% in July. People continue placing their bets on whether leading manufacturers International Game Technologies (IGT:NYSE - news - commentary) and WMS Industries (WMS:NYSE - news - commentary) are still overvalued -- or, more specifically, whether their torrid earnings momentum is sustainable.
Peter Eavis recently offered a detailed look at the near-term risks associated with IGT. Independent research firm Fulcrum Global Partners has been advising clients to sell WMS Industries for months. Yet others scoff at investors' apparent surprise at slowing unit sales, especially in California, and have jumped to the group's defense, calling the weakness an opportunity to build positions in both stocks.
Taking a Look Inside
My take involves the doings of insiders. I've always believed they're more influenced by a feel for business conditions than by a hunch that a stock will jump or plunge. So, if you're getting the willies about your holdings or just now looking to get in, consider that insiders have been liberal sellers of both IGT and WMS for most of the past quarter.
At IGT, seven insiders have sold nearly 1 million shares since April 24 at $56.95 to $65.10 per share. Among the sellers, Chief Executive Thomas Baker sold 200,000 shares, while Vice Chairman Albert Crosson sold 202,367 shares and filed a Form 144 intention to sell an additional 195,500 shares. Both are infrequent sellers, and both sold in 1993 ahead of an 18-month, 65% selloff. All told, five of the recent sellers reduced their actionable IGT positions (common stock plus options) by 25% to 30% -- not over the top exactly, but to me, a bit more than routine profit-taking.
Since May, 10 insiders at WMS have offered up 344,710 shares at $20.59 to $31.40 per share. Three executives, Chief Executive Brian Gamache, General Counsel Orrin Edidin and Chief Financial Officer Scott Schweinfurth, all trimmed their actionable positions by more than half. While Chairman Louis Nicastro still maintains a hefty personal stake, his 50,000-share sale on May 21 was only his third since 1993.
Again, the insider sales at both companies occurred before the July selloff. This renders the sales moot for some, but not for me. I think nothing's been settled. I'm still concerned by the degree to which key executives at both companies reduced their exposure to the stocks. Likewise, I'm worried that insiders at both companies have generally been relatively infrequent sellers over the years. According to an IGT spokesman, the executives sold for personal reasons, though he didn't deny that the stock's recent appreciation played some role in their decision to sell. WMS, however, does not comment on stock sales.
The Takeaway
Most important, the debate goes on. Though Eavis spoke specifically to cash-flow issues, I like his suggestion: Stay on the sidelines until things clear up. Sizing up the prospects for slot-machine makers is about as easy as keeping gambling puns out of this column.
In the spirit of disclosure, I do have a bone to pick with IGT. Its recent acquisition of sometime competitor, sometime collaborator Anchor Gaming snatched away one of my all-time faves. Unlike those at IGT and WMS, Anchor executives weren't bashful traders, and they caught their share of tops selling that manic little number. I'm going to miss them.
Finally, for those of you keeping score, Form 144 restricted stock, registered for sale by insiders and other early investors, clocked in at more than $5 billion for June. This proxy for insider selling had trended downward from record highs in February and March 2000 before jumping to more than $11 billion in May.
This lack of follow-through in June is admittedly welcome. It does, however, leave us once more searching for a trend. |
