Tech Insiders Voting With Their Wallets

As the second-quarter earnings season gets under way, festive tech investors are all but donning lampshades for party hats. And there's reason to celebrate: The Nasdaq has sashayed up 28% since the beginning of the year, compared with the S&P 500's more sedate 12% growth.

The benchmark for chips, the Philadelphia Stock Exchange Semiconductor Index, has leapt even higher, up 35%.

But not everybody's feeling so cheerful in techland. Corporate insiders -- the folks who ought to know better than anybody else where the industry's going -- look like downright sourpusses these days. In the second quarter, insider sales surged to their highest level in more than a year, while monthly insider buys of stock by tech executives slumped even more dramatically, to the lowest level since 1997.

Why the big jump in insider selling? Some of the cash-outs may have happened because options are finally in the money again. But even if that's the case, the takeaway is that many tech executives don't see much upside in their companies' stock prices.

The rash of selling suggests that, in the best case, management doesn't believe shares have much room for appreciation. In the worst case -- if third-quarter outlooks disappoint, there's a risk that tech stocks could lose a chunk of value.

"Insiders have been selling like there's no tomorrow," says Christopher Whalen, an analyst at research boutique Ramberg Whalen who argues that tech has "run to silly levels." His take: "I think the smart money's taking profits now and all that's left are the big retail funds that have been dying to get in."

Chris Bonavico, manager of the (TPAGX)Transamerica Premier Aggressive Growth fund, says that heading into the second half of the year, he expects tech companies to show "modest improvement." "But that doesn't argue for continued high-beta, shoot-the-lights-out performance," he adds. His fund is underweighted in technology.

Top 10 Tech Insider Sales in Q2 Insiders voted with their feet
Company	Insider Sales Q2 2003*	Factor Increase in Selling Since Q2 2002	Insider Sales Q2 2002
Microsoft	$108,696,470	4.1	$26,266,590
Dell	103,829,810	14.4	7,210,153
Yahoo!	48,543,675	5	9,706,743
Broadcom	30,041,180	15	1,999,358
Oracle	29,916,684	4.8	6,172,658
Linear Technology	29,758,229	13.8	2,159,950
Veritas	26,260,790	3.1	8,609,855
Microstrategy	25,958,723	32	807,300
Manhattan Associates	25,727,103	.9	27,889,467
Netscreen Technologies	23,682,074	120	196,600
Source: Thomson Financial. * Note that figures include only sales by individuals (excludes trusts, foundations, limited partnerships, VC firms, etc.) and exclude sales with a value in excess of $50 million, which are not deemed to be predictive of future stock moves.