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Published: August 2, 2010
When officers and directors decide to buy
their company’s stock with their own cash, it’s invariably seen
as a bullish sign for shares. Yet when they decide to sell,
investors need not necessarily be overly concerned. Perhaps
shares have had a nice run and a little profit-taking by
insiders is to be expected. Or maybe a few shares need to be
sold to fund this month’s mortgage payment. But when insiders
dump large amounts of stock, even as that stock is racing toward
the 52-week low, then investors should follow their lead and
head for the exit as well. That’s just what happened with
Micron Technology (NYSE: MU) on Friday, pushing shares down
-6%.
During the past few days, it had become apparent that Micron’s
chairman and chief executive officer (CEO) Steven Appleton,
along with the company’s president and two other insiders,
collectively sold more than $1 million worth of stock on
Wednesday, even after shares had been drifting steadily lower in
recent weeks. While those insider sales amounted to 143,000
shares, "outside" investors voted with their feet Friday as more
than 60 million shares changed hands.
On the upswing
By all accounts, Micron’s business is on the upswing. Sales and
profits have surged in recent quarters, and Micron is on track
to earn nearly $2 a share in the
fiscal year ended August. That would be a company record.
The company has pulled off a series of moves in recent months
that will lighten expenses and diversify the customer base. For
example, selling a 50% interest in a key Asian manufacturing
facility should net Micron a $450 million cash infusion in
August, bolstering an already-growing cash balance. Moreover,
Intel (Nasdaq: INTC) announced earlier this month that
demand for computers (which consume a lot of Micron’s memory
chips) is really taking off, setting the stage for robust chip
sales into 2011.
To be fair, all kinds of chip stocks are
buckling under this week. Integrated Silicon Solutions (Nasdaq:
ISSI) fell sharply on Thursday on no apparent news, while
other chip makers such as Cypress Semiconductor (Nasdaq: CYPS)
and Xilinx (Nasdaq: XLNX) traded lower by lesser amounts.
So this may be more about investor queasiness about tech
spending than any actual negative industry actions taking place.
But none of that bullish commentary matters if management acts
so bearishly.
Action to Take --> Insiders
at Micron may have unwittingly touched off misplaced fears that
business is turning south. Sales and profit trends may indeed
still be on the mend from the nadir of the economic crisis, but
no matter how bullish Micron and its peers sound on the next
round of conference calls, heavy insider selling may still be
the most salient message to investors.
Micron’s trading action highlights an important step for
investors: before buying, check out the latest insider moves. If
you're looking at purchasing a stock and insiders are selling
even as the stock is approaching lows, then hold off on that
"Buy" order. And as in the case with Micron, when it's a cluster
of insiders who are selling, be very leery.
Insiders must file a copy of their activities with the U.S.
Securities and Exchange Commission (SEC). You can track
their moves at SEC.Gov under the category "Filings and Forms."
Several websites, including insiderinsights.com and
edgar-online.com also track these transactions.
-- David Sterman
Staff Writer
StreetAuthority |
