Insider Selling Suggests Health Care Relapse - TheStreet

For the better part of a year, health care insiders were among the most

ardent supporters of their companies' stocks. And with good reason, too, as most believers were fairly well rewarded for their faith.

But now, to judge from recent action among insiders, the patient may be taking a turn for the worse.

Not only has insider accumulation in health care waned in recent weeks, but cases of insider selling are also popping up, especially among the managed-care providers. This is particularly troublesome given the ongoing skirmish over the

Patient's Bill of Rights

, not to mention a recent

Supreme Court ruling that denies patients the right to sue their HMOs in federal court.

So what happened to the industry? Did the fundamentals really improve and then deteriorate, or did managed care merely benefit over the past year from an investor flight to value (dare I say, cheap) stocks? That debate rages on. But one thing is clear: Insider enthusiasm in the group is clearly not what it once was.

For instance, in May, five insiders at

First Health Group

( FHCC), including the company's CEO and CFO, filed their intentions to sell more than 600,000 shares. Three of these same insiders exercised options to acquire shares over the course of last year (and held on).

Moreover, moderate selling has surfaced at

PacifiCare Health Systems

( PHSY),

WellPoint Health Network

(WLP)

,

UnitedHealth Group

(UNH) - Get Report

and

Oxford Health Plans

( OXHP), among others.

That's quite a list. And keep this in mind: As telling as the insider profile at any one company may be, an insider pattern that emerges on a sectorwide scale is more revealing.

Routine Profit-Taking or a Sign of the Times?

Everyone knows that

Silicon Valley Bancshares

(SIVB) - Get Report

is no ordinary bank. Just look at its chart for proof.

After gaining nearly 200% last year, the stock is up another 33% so far this year. The company is a hybrid bank/venture capital firm that invests in emerging technology companies. It's no surprise, then, that along with the dramatic gains comes volatility far greater than that of your typical bank.

That insiders are selling the company's shares isn't news -- well, at least not entirely. On May 9, Silicon Valley issued a press release to announce upcoming stock sales by John Dean, its president and CEO. According to the release, Dean will be selling up to 25% of his holdings over the next 12 to 18 months in order to pay off personal debt and diversify his holdings.

But what should be news -- and, curiously, what the company didn't comment on when announcing Dean's scheduled sales --is that five other upper-level executives and one director had filed intentions to sell more than 325,000 additional shares in April and May.

You may recall a similar chain of events recently unfolding at

Cendant

( CD). Back in February, Cendant announced that CEO Henry Silverman would part with 1.8 million shares, but made no mention of accompanying selling by fellow executives. Now, Silicon Valley may not be Cendant, but one has to wonder why all the insider selling was not addressed by the company.

The question for shareholders is whether the activity at Silicon Valley is routine profit-taking or something more sinister.

Some familiar with the company insist that any decrease in the bank's IPO/venture capital and warrant income will be more than offset by an increase in its traditional lending operations and deposits. Because only a fraction of the bank's loan portfolio involves Internet companies, even a prolonged market downturn will have little effect on asset quality, they argue.

On the other hand, company insiders are selling not only before the stock fully regains its March highs, but also on the heels of some extreme volatility.

Strange, huh? Then again, that's what makes this game so compelling.

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

rgabele@thestreet.com.