CVS (CVS) - Get Report made quite a splash in late October when it announced fourth-quarter earnings growth of 20% -- and promptly saw its stock plunge more than 15%. Sure, timing had something to do with it: the market was leery from the recurring slip-ups of CVS competitor and former darling Rite-Aid (RAD) - Get Report. But the real culprit was decelerating sales growth -- the kiss of death for the momentum investor.
All right, so the momentum guys are gone, but sales and earnings are still growing. In the third quarter alone, the company opened 27 new stores and relocated 82 others. The company also announced plans to expand into the Tampa, Fla., and Grand Rapids, Mich., markets. Under a partnership with
, CVS will now sell over-the-counter products on a site operated by the
Merck-Medco Managed Care
will be the exclusive Internet provider of prescription services for Merck-Medco's 51 million members.
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But what we like most about CVS is that insiders are starting to like it. In early November, three insiders purchased a combined 75,145 shares at prices ranging from $34.69 to about $36.69 per share. Notable among the buyers was Chairman and CEO Thomas Ryan, who purchased 25,000 shares. Director Thomas Gerrity, who incidentally sits on numerous other corporate boards, picked up 30,000 shares -- equivalent to 10 times the value of his previous largest investment at any of the companies for which he files as an insider. Director Terry Lautenbach accounted for the remainder, purchasing 20,145 shares. This, too, was his largest buy to date.
Since the October selloff, Ryan, who at first described Wall Street's reaction to the fourth-quarter earnings report as "baffling," has repeatedly stressed his focus on the company's longer-term strategies. In the wake of the Rite-Aid debacle, it will be interesting to see whether CVS insiders continue to bet their own money on management's plans for the future.
The insider story at
may yet be worth telling, even though the stock has had a nice run recently. Before the recent run, five company insiders purchased in November a total of 34,000 shares at prices ranging from $8.50 to $9 per share.
Director Fontaine picked up 9,000 shares, while President Walden Rhines followed suit, picking up 10,000 shares. It's worth considering, certainly, that after Rhines bought shares at about $7.50 per share in August 1998, the stock rallied to more than $15 per share by February 1999. A pair of directors rounded out the activity, picking up a combined 7,000 shares.
Mentor Graphics is a jumpy stock to be sure, and the current price is admittedly higher than that at which the insiders bought. But we do like the fact that while insiders began buying back in July, they resumed their buying in November. And it's still nice to know that the insiders are betting right along with you -- something you can't always say when going long a fast-moving tech stock.
On the other hand,
execs are peeling away their positions at a rapid clip. Yes, we know the stock is red-hot, and we realize that insiders might want to take a little profit, but we still think the selling appears unusual enough to merit a quick mention. Apple spokespeople declined to return our phone calls.
First, as we touched on
last week, insiders are typically reluctant to take profits at the end of the year, especially those at highfliers with tons of momentum. As a result, those that do lock in gains tend to catch our eye. But what's really unusual is that compared to insiders at, say
, Apple insiders have only modest stakes in their own company.
Consider, for example, the three executives who recently filed intentions to sell a combined 243,333 shares. Surprisingly, the 166,666 shares registered for sale by CFO Fred Anderson represented more than 75% of his total actionable (i.e., common stock plus exercisable options) position. Though more modest, VP Jonathan Rubinstein's and Director Edgar Woolard's proposed sales of 66,667 and 10,000 shares, respectively, would nonetheless trim their actionable positions by roughly 40%.
We should point out that we saw some selling earlier this year at much lower prices. But because the Apple execs can't claim the traditional insider-selling justification -- that they're "diversifying" -- you have to wonder why these executives would be knocking off so much off their holdings, even as so many outsiders are clamoring to get on board.
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