Finding the Hidden Motive
Updated from 12:42 p.m. EDT
When Autodesk (ADSK) reports earnings Thursday, you might ask the company's CEO why she is selling 50,000 shares of the company's stock each week through a prearranged trading plan.
While insider selling is a well-known investor red flag (albeit one subject to debate), Autodesk is an example of a new generation of insider transactions that investors may want to add to their stock-analysis arsenal.
Similar to insider sales, investors probably wouldn't want to base a decision on buying or selling stock on these new scenarios alone. But they can be indicators worth watching.To avoid insider trading on material information, many executives have adopted what are called 10b5-1 plans, named after the Securities Exchange Act provision that defines insider trading. These plans take the discretion to sell out of insiders' hands by establishing a predetermined program of sales that can be based on a schedule -- monthly, for example -- or at a specified price. Because the sale happens independently of the seller, an investor may be apt to disregard transactions under 10b5-1 plans. But not so fast. Consider a couple recent examples involving Amazon.com (AMZN) and Autodesk. Days after the release of its latest quarterly results and a subsequent jump in its stock price across the $40 mark and then above $45, Amazon saw a flurry of sales earlier this month, with eight insiders ultimately selling some $17.7 million worth of stock under their 10b5-1 plans. Amazon spokeswoman Patty Smith says the sales were not prompted by a change in the 10b5-1 programs but instead could have been triggered by timing or stock price. She declined to provide additional detail on price triggers.
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