US Insider Sales Surge 68% to $36.5 Bln in 1st Half
New York, July 7 (Bloomberg) -- U.S. executives boosted their stock sales in the first half of the year by 68 percent from the year-earlier period to a record $36.5 billion, led by Microsoft Corp. officers.
Microsoft co-founder Paul Allen led the sellers by disposing of $4 billion in shares, as the software maker's shares fell 30 percent this year. Allen, Chairman and co-founder Bill Gates and other Microsoft officers accounted for 12 percent of all insider sales, according to the Washington Service research firm.
Insiders -- executives, directors and big individual investors -- cut their purchases by 36 percent to $1.34 billion from January through June. The pace of selling has increased to a two-year high, and insiders continue to sell even as the Nasdaq Composite Index has fallen 22 percent over the past four months.
``It's definitely a red flag,'' said David Coleman, editor of Vickers Weekly Insider Report, which tracks buying and selling of executives. ``The market is vulnerable.''
Other big sellers included officers of computer makers Dell Computer Corp. and Gateway Inc., as well as executives of Cisco Systems Inc., the No. 1 maker of computer networking equipment; and Amazon.com Inc., the top Internet retailer.
Cashing In
``These guys are pretty smart to be selling,'' said Carl Domino, president of Northern Trust Value Investors, which manages $2 billion in West Palm Beach, Florida. ``Guys who may not have had that much money in the past see their stocks run up and are cashing in.''
The Nasdaq index has fallen to 4023.20 from 5132.52 on March 10, yet selling continued even as stocks declined. That's a warning signal for Internet-related companies whose values seem out of line to their sales and profits, analysts said.
For example, Amazon.com CEO Jeffrey Bezos sold 368,650 shares at $54.24, or $20 million, or less than half the retailer's peak of 113 last December. Its shares have since fallen to 36 1/8 on concern the company could run out of cash.
``Insiders are still willing to let shares go at lower prices'' in the Internet sector, said Bob Gabele, director of research for First Call/Thomson Financial. ``The persistency of selling is a concern.''
Other Web-related companies with big sales include merchants eBay Inc. and Priceline.com Inc., software makers Ariba Inc. and Commerce One Inc. and online investor Internet Capital Group Inc., according to Washington Service.
Option Grants
Microsoft officers, who sold $4.4 billion over the past six months, have led the selling for the past four years. Other big sellers include Dell founder Michael Dell, who sold $755.4 million; Gateway founder Ted Waitt, with $387.7 million in sales; and Cisco CEO John Chambers, who sold $151.5 million.
Microsoft and Dell said their officers regularly sell small amounts of stocks to diversify their investments. Cisco said the sales were related to option grants as well. Amazon.com said Bezos sells shares from time to time to finance investments and other commitments. Gateway said Waitt sold shares to diversify his investments and fund charitable donations.
Selling by computer and Internet executives can be misleading because such companies compensate employees with option grants, which lead to unusually large sales, analysts say.
Moreover, executives may have many reasons to sell shares -- because they are buying a house, diversifying investments or feel the stock is near a peak.
During the past eight weeks, there were five sellers for every three buyers, according to Vickers. That's the highest rate of selling since July 1998 and a reversal from early January, when buyers exceeded sellers.
Looking for Value
Typically, twice as many sales as purchases are reported by officers and directors, who are required to disclose their moves to the Securities and Exchange Commission.
The trend toward increased sales is more worrisome than the actual level of selling, analysts said.
Insiders tend to purchase when they think their stocks are good values, analysts said. Today, though, stocks in the Standard & Poor's 500 index trade at 30 times the past year's earnings, about twice the level of a decade ago. The Nasdaq index, with a greater weighting of computer-related and Internet stocks, trades at 147 times profit for the past year.
``By historical standards, the market is 30 percent to 40 percent overvalued,'' said money manager Domino.
The biggest buyers have been officers of Philip Morris Cos., the largest U.S. cigarette company, and Loews Corp., which owns Lorillard Tobacco. Philip Morris Director Carlos Slim Helu bought $91.2 million in stock, while Loews executives Andrew Tisch and James Tisch bought a combined $89.3 million.
Philip Morris, the maker of Marlboro, trades at 8 times the past year's earnings, or less than a third of the S&P 500 index's multiple. Tobacco stocks have been hurt by concerns about potentially costly legal judgments awarded smokers, especially a class-action lawsuit being tried in Miami, analysts said.
``The insiders think they'll be in business in five years,'' making current prices a good buy, said money manager Domino.
Insider purchases don't always pay off. Officers of insurer Conseco Inc. bought $143.8 million in stock in 1998 and another $129.7 million last year. The shares have fallen from 58 1/8 in April 1998 to 9 5/8.
Conseco said it encourages officers to buy stock by arranging loans for them. This type of program and company guidelines for ownership may influence levels of shareholdings, making the purchases potentially misleading to investors, analysts say.
Jul/07/2000 16:18 ET |
