Imagine that back in January 1990, you'd bought shares of
Advanced Micro Devices
, locked them away and promptly forgotten they existed. You'd probably be pretty happy that you did. Had you opted, on the other hand, to chronicle the stock's progress from your purchase at 7 1/2 to today's 50 or so, you'd probably still be happy, if a whole lot worse for wear. In a sector known for its savage boom/bust cycle, few issues can match AMD for its roller-coaster intensity.
These, my friends, are the boom times, and have been for more than a year. And the consensus among those who follow chip stocks seems to be that the up-cycle has plenty of life left. As a result, many predict it will be a year or even two before capacity again exceeds demand and prompts the inevitable downturn. The continued strength of most semiconductor stocks seems to affirm this optimism.
Little wonder then that AMD insiders are selling a few shares. After all, having netted next to nothing in all of 1999, the company's stock is up roughly 60% in the past two months alone. All told, that's more than a 200% increase since the stock dipped below 15 back in April 1999. Why shouldn't insiders be taking a few chips off the table? Who wouldn't?
Well, a few points: First, the 1.1 million shares sold or registered for sale in late January through mid-February by 19 AMD executives and directors is hardly a few shares, even by highflying tech standards. In fact, this is by far the largest round of selling ever by AMD insiders, exceeding even the two prominent clusters back in 1997.
Which brings us to the second point. Those sales back in 1997 (first in April and again in October) also occurred in a period of unbridled optimism. Most intriguing, the sales preceded a dramatic and enduring share-price slump.
Talk About Timing!
As was the case in 1997, Chairman and CEO Jerry Sanders led the way, recently selling more than 375,000 shares. The transaction caught our attention not because it represents a disproportionate share of his holdings (it doesn't), but rather because it is Sanders' first sale since he sold more than 200,000 shares back in April 1997. Executive Vice President Eugene Conner's 50,000-share sale was likewise his first since 1997.
Vice-Chairman Richard Previte, on the other hand, has been a more frequent seller over the past two years. Even so, prior to his recent sale of 168,050 shares, he had not sold more than 20,000 shares at any one time. Senior Vice President and co-Chief Marketing Executive Robert Herb and General Counsel Thomas McCoy were among the remaining sellers.
Now for the usual caveats: No, the fact that AMD insiders are selling shares does not mean that the stock is destined to summarily collapse. After all, the old adage that insiders sell for a wide range of personal reasons holds a grain of truth. And you have to admit, until recently it wouldn't have made a whole lot of sense for AMD insiders to sell. Finally, in all but the most "textbook" cases, insiders tend to be early with their sales (and for that matter, with their buys).
AMD insists that investors should read nothing into the recent sales. Pointing out that stock options are integral to AMD executive's compensation (and that insiders have but four brief windows each year in which to sell), a company spokesman didn't hesitate to address the question of timing. According to AMD's spokesman John Grennagel "the intent of exercising options is to make money." Amen to that!
No matter how you slice it, the situation satisfies a number of our favorite criteria for potential significance: 1) Seventeen insiders is a whole lot to be selling at one time, 2) AMD is a volatile stock and 3) AMD insiders have established themselves as proficient sell-side timers.
Even more intriguing is how familiar it all feels. Back in 1997, when we last highlighted insider sales at AMD, the shares had run up from a four-year low of around 10 to near 50 in a matter of months. AMD was on a roll, and with the imminent release of the much-anticipated K6 processor, the stock looked nothing short of a sure bet (this, you could have gauged by the raised eyebrows we endured).
This week, all eyes are on AMD's groundbreaking release of its one-gigahertz Athlon processor. At last, AMD appears to have won its arms race with rival
-- even if it is given but a day or two to savor the victory.
Shareholders can savor the fact that the stock popped about 35% in the past week (a move that must make those insiders who sold a bit green with envy). On the other hand, the selling that peaked in April 1997 looks much more prescient in hindsight than it must have in real time.
None of which is to imply that AMD insiders could have predicted the production and performance glitches that plagued the K6 rollout back in 1997. By the same token, it's hard to deny that for whatever reason, they picked a fairly fortunate time to sell.
Fast forward to today. How long will the latest good times last? Only time will tell. But if history tells us anything, it's that it won't be forever. Don't know about you, but I'll be curious to see whether this record-breaking round of sales by AMD execs proves as timely as the last.
Bob Gabele has been tracking and analyzing insider trading since 1978, most recently for First Call/Thomson Financial. This column is not meant as investment advice; it is instead meant to provide insight into the methods of insider trading. At time of publication, Gabele held no position in any of the companies discussed in this column, although holdings can change at any time. Under no circumstances does the information in this column represent a recommendation to buy or sell stocks. Gabele appreciates your feedback at