Stephen’s Posterous

Huntington Executives Put Money in the Bank by David J. Reynolds, WSJ.com

The chief executive, three top officers and 10 directors of Huntington Bancshares Inc. purchased a total of $1.58 million in company shares the week of April 20, 2009, a positive insider signal at an embattled regional bank.

Stephen Steinour, who became the bank's chief executive and chairman in January 2009, bought about two-thirds of the shares for just over $1 million on the open market, according to regulatory filings. He didn't hold any Huntington stock before his buy.

Insider-transaction analysts viewed the purchases as a moderately bullish sign, but said their excitement is tempered by the fact that Mr. Steinour is required by his employment agreement to acquire shares. Ben Silverman, director of research at InsiderScore.com, noted that Mr. Steinour receives a $1 million base salary and that his employment agreement requires him to hold $5 million in company shares by the end of his fifth anniversary as CEO.

"He's put his annual salary to work in the stock," Mr. Silverman said. "Now he's 20% of the way toward his requirements."

It has been a rough ride of late for Huntington shareholders. The Ohio-based company, which operates Huntington National Bank, has been hammered by sour loans and recently posted a quarterly net loss of $2.4 billion because of a noncash $2.6 billion goodwill write-down. The stock has lost about 90% of its value over the past two years.

Since touching a low of $1 in February 2009, Huntington stock has shown some signs of life, trading Tuesday at $2.78. The 14 Huntington insiders paid an average price of $3.44 for their shares.

Among other measures to shore up its capital position, the bank last year accepted $1.4 billion in funds from the U.S. Treasury's Troubled Asset Relief Program, or TARP, adding extra scrutiny to the stock transactions of its insiders.

"Anyone who's a TARP recipient, taxpayers like to see them buying instead of selling," Mr. Silverman said. The Huntington buyers join a long line of insiders purchasing shares of financial companies, almost always with disappointing results.

"For the last two years, we've watched banking insiders buy, thinking their businesses were stronger than they actually were," Mr. Silverman said.

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Apparel Investors Could Lose Their Shirts by Avi Salzman, Barrons.com

As investors try to divine the market's direction, it might be wise to follow the smart money. Among the top executives at apparel retailers, sentiment has taken a particularly bearish turn, with executives and board members selling stock in their own companies at a furious pace this month.

That alone could be reason to sell the shares. But the apparel retail sector is giving investors another big reason to dump their stocks. Valuations have become overheated, the sector is trading at more than 14 times 2009 earnings, more than the Standard & Poor's 500 overall, after a nearly 40% bounce in apparel stocks since March 6.

Even companies whose same-store sales numbers have cratered, such as Abercrombie & Fitch (ANF), American Eagle Outfitters (AEO) and the Gap (GPS), are trading at price-to-earnings multiples that track or exceed the S&P 500.

Looking further ahead, the stocks appear even pricier. Amy Noblin, an analyst at Pali Research, said the companies she covers, including virtually all the big apparel retailers, are trading at about 25 times 2010 earnings. Meanwhile, consumers have shown no appetite for buying clothes.

"The valuation makes no rational sense," she says. Insiders at some apparel firms seem to agree. Sentiment among insiders, CEOs, CFOs, directors and the like, at retail companies is unusually negative, according to a report released last week by InsiderScore.com, a Website that tracks insider buying and selling.

And among retail insiders, those who run apparel companies have led the way in selling shares, says Ben Silverman, research director at InsiderScore.com. Selling among apparel retail insiders has reached its most aggressive pace since November 2006, notes Silverman.

"As an investor, I'd be very leery at this point," Silverman says. At the Gap, where shares have jumped about 50% since early March 2009, three members of the founding family sold $60 million in stock this month.

Although the family still owns 30% of the company and tends to sell often, it was the largest cluster of sales there since last fall. That wasn't the only bad news for the company: Same-store sales fell 8% in March after dropping 12% in February and 23% in January.

At Aeropostale (ARO), which caters to teens, seven top managers or directors, including Chief Executive Officer Julian Geiger, sold more than $9 million in shares beginning on April 13, much of those through options.

The company has performed well during the recession, increasing same-store sales and margins, but could face increasing pressure in the second half of the year as it faces more difficult same-store comparisons and competition, says Adrienne Tennant, an analyst at FBR Capital Markets. Shares of Aeropostale have more than doubled since the beginning of the year.

At Ross Stores (ROST), an off-price retailer, CEO Michael Balmuth sold more than $15 million in shares he exercised more than five years before their expiration dates, capitalizing on a 30% jump in shares since the beginning of the year.

At American Eagle Outfitters, which sells to teens and young adults, Vice Chairman Roger Markfield entered into a selling plan in late March to sell stock options set to expire in August. He has already taken about $2 million off the table this month. American Eagle stock has jumped about 70% since early March.

Other apparel companies with notable recent sales include New York & Co. (NWY), Men's Wearhouse (MW), and Wet Seal (WTSL). David Berman, a retailing expert at hedge fund Durban Capital, says the recent jump in stock prices among apparel retailers was preceded by a wave of lowered earnings projections, which made it easier for companies to hit their targets.

"There was a panic in January," he says. "Now they're beating low expectations. It's just a mirage." "I think the stocks are poised for a pullback relative to the market," he adds.

Some retailers have successfully cut costs as they trim inventory, but few have figured out how to get consumers to open their wallets. To entice customers, they've been forced to offer margin-killing discounts.

"As a general rule, apparel is still in a ditch, both on the top line, and as far as its share of the consumer dollar," says Craig Johnson, president of retail research company Customer Growth Partners.

The stocks seem to be anticipating an uptick in consumer demand, but analysts and industry consultants tend to think the news will simply get worse (despite a slight uptick in April, the consumer confidence index is still "incredibly low," JPMorgan analysts wrote in a note on Tuesday).

Credit-card companies are poised for waves of defaults, and the savings rate continues to grow, says Brian Sozzi, an analyst at Wall Street Strategies who urged clients in early April to short retail stocks.

Apparel retailers as a group won't likely be growing their same-store sales numbers until mid-to-late 2010, Tennant says. That said, it's not a given that apparel stocks will decline.

Selling by insiders doesn't necessarily presage a pullback in stock prices, Tennant says. And sometimes when money managers expect to buy on a pullback -- as they do now -- they get impatient.

"If there are enough people out there who are afraid of missing the drop, the stocks could go up," Noblin says.

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Las Vegas Sands Corp.'s chairman and chief executive, Sheldon Adelson, recently rolled the dice with a purchase of company shares, and he may also have tipped his hand regarding the casino company's talks with Chinese investors.

Mr. Adelson bought $37.4 million of the stock in the last two weeks, a move that, because of the nature of securities laws, suggests that the Las Vegas company isn't significantly closer to completing a Macau deal than has already been publicly disclosed.

An insider, after all, is prohibited from trading while in possession of important nonpublic information about a company's prospects. Mr. Adelson and the company had no comment on the stock purchases, a spokesman said.

Las Vegas Sands has said it is talking to two Chinese investment groups about their potential purchase of stakes in casinos and hotels in Macau, China's gambling enclave. Las Vegas Sands has placed some Macau projects on hold because of the world-wide economic slowdown.

An important strategic move in Macau would likely be impossible without private discussions well in advance, said Ben Silverman, director of research at InsiderScore.com, a site that tracks and rates activity by corporate insiders. The legal constraints on insider trading suggest that Mr. Adelson isn't sitting on big news, Mr. Silverman said.

"Either those talks really haven't started or there's nothing imminent," Mr. Silverman said. "The buying signaled to me that everything is very preliminary, that they must not be close to a deal."

Mr. Adelson purchased 12.6 million company shares on the last three trading days in March, according to filings with the Securities and Exchange Commission. Mr. Silverman said the stock purchase, while an incrementally positive sign, amounted to a "drop in the bucket" for Mr. Adelson, who invested about $1 billion in the company during 2008.

Once ranked as one of the world's richest people, Mr. Adelson has seen his fortune wane along with Las Vegas Sands' stock price. After the company went public in a 2004 offering at $29 a share, shares rose to $140 by October 2007. On Tuesday, April 7, however, the shares traded at $4.03 each on the New York Stock Exchange.

In another move with potential strategic significance, Las Vegas Sands recently hired Goldman Sachs Group Inc. to negotiate an amendment from lenders that would allow it to buy back as much as $800 million of its debt. According to its annual report, the company had $10.4 billion in debt at the end of 2008, up from $7.5 billion the previous year, as it pursued its expansion plans in the face of the global recession.

Mr. Adelson has said that the company has no plans to buy back debt and wanted the amendment "solely for the purpose of flexibility."

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Investors have to be the betting type to get into a stock that: has lost over 95% of its value in the last year; is dependent on consumers' discretionary spending; and is in need of cash.

But the longtime head of Las Vegas Sands (ticker: LVS) is wagering that the house will win, and has plowed more than $23 million into the casino operator.

From March 27 through 30, 2009, Chairman and Chief Executive Officer Sheldon Adelson purchased 7.8 million shares for $23.2 million, an average of $2.95 a share. The purchases were made indirectly through one of his investment vehicles. Adelson now owns 338.4 million shares indirectly and through trusts, giving him a 51.8% stake in the company.

Adelson, a self-made billionaire, has headed the company and its predecessor firms since 1998. Although this is Adelson's first open-market purchase after a 100-share buy at the company's 2004 initial public offering, he poured $1 billion into Las Vegas Sands in late 2008 to acquire convertible senior notes, preferred stock and warrants as the company struggled to raise capital.

Barrons.com wrote about Fidelity Investments' participation in Las Vegas Sands' November special offering, in which it increased its holdings in the company to 108 million shares, or a 14.9% stake. Shares of Las Vegas Sands have been pummeled as investors fret over stiff competition in Macau and lagging demand in its hometown, as scrimping U.S. consumers curb spending on vacations and gambling.

The stock fell to an all-time low of $1.38 on March 9; it was trading above $83 a year ago. Year-to-date, shares have lost nearly half their value and are down almost 96% in the last 12 months. The Dow Jones U.S. Gambling Index is down 77.8% in the past year.

Ben Silverman, director of research for InsiderScore.com, notes that while on the surface the buy seems bullish, there are several factors that make him hesitant about it.

"While $23 million is certainly a sight for sore eyes, it is relatively small, when one considers that he put $1 billion into the company late last year," he says. "You also have to consider that he took $3 billion out of the company through sales in 2005 and 2006."

And, as Adelson recently told Newsweek that his net worth is still above $5 billion, it is disconcerting to realize that his Las Vegas Sands holdings constitute a minority of that wealth at around $1.5 billion.

"He also had more than $13 million coming back to him from the company in January, as dividend payments for his preferred shares," Silverman says. "So about 60% of the purchase is essentially a dividend reinvestment."

Silverman says he also believes that the buy signals that Adelson doesn't see any near-term financing deals coming together. Las Vegas Sands had announced in February 2009 that it is in talks to obtain capital from potential investors in order to restart shuttered development projects, both in China and the U.S.

Las Vegas Sands stock has bounced slightly on the news of Adelson's purchase and positive analyst notes, which lauded the fact that worst-case scenarios out of Macau did not play out. On Wednesday, April 1, the stock rose 73 cents to $3.74. However, Silverman says he remains wary, as Macau remains a difficult market, and the domestic economy continues to struggle.

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Tiffany & Co.'s largest shareholder cut 21% of its stake last week, ending on March 27, 2009, even as the company's strong fourth-quarter report propelled shares out of a nasty slump.

Activist hedge fund owner Nelson Peltz's Trian Fund Management sold 2.3 million shares in Tiffany on Wednesday and Thursday, March 25, and 26, for $51 million, or about $22.64 per share on average. Peter May, who founded Trian with Peltz and Ed Garden in 2005, holds a seat on Tiffany's board, and was listed as the beneficial owner of the shares in filings with the Securities and Exchange Commission.

Peltz is generally known for taking stakes in food and beverage companies and instigating changes at the companies. He recently purchased Wendy's, merging it with Arby's to become the Wendy's/Arby's Group (WEN). Trian has been less active in Tiffany so far, despite winning the board seat last year.

Trian funds continue to hold about 8.4 million shares, or 6.9% of Tiffany's stock and remains the largest shareholder. May's government filing about the sales said "the filing persons have no current intention of selling any additional shares in the near term."

"The sales were strictly the result of adjustments Trian made to its portfolio," a spokeswoman for Trian wrote in an e-mailed statement. "Peter May remains an active Tiffany board member and Trian continues to be very pleased with its investment in Tiffany and the company's long-term outlook."

A Tiffany spokesman says that Trian's sales were simply a portfolio adjustment and that May continues to support the management team.

The Trian funds appear to have sold at a significant loss. Trian last ramped up its investment in Tiffany early in 2008, when shares were trading around $35. Around October 2008, Tiffany fell victim to the slowdown in consumer spending even among the wealthy. The stock hit a 52-week low of $16.70 on March 6, 2009.

Aspirational products like Tiffany diamonds are suffering mightily in the recession. Consumer weakness, along with sales by an insider such as Trian, does not bode well for the company's shares, one observer noted.

"The sales are a negative because of May's position on Tiffany's board, the weak outlook for consuming spending, and the outflow of shares from strong hands to potentially weak hands," wrote Ben Silverman, director of research at InsiderScore.com. Tiffany's fourth-quarter report, released March 23, topped Street earnings expectations, and two analysts raised their recommendations on the stock. But others see numerous troubling signs ahead.

"Beyond the inauspicious capital structure of Tiffany (45.0% funded through debt), business mix is running unfavorably, domestic sales are not bottoming, and Japan may just be a lost region well into 2010," wrote Brian Sozzi, an analyst with Wall Street Strategies, on Friday. Sozzi rates the stock at Sell.

Tiffany's world-wide sales were down 20% during the quarter, and domestic sales were down 30%, "an outright horror show," in Sozzi's words.

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While apparel retailers continue to struggle amid the current recession-induced consumer pullback, shares of American Apparel (ticker: APP) have soared recently, after it raised capital and reported sales growth. However, the founder and longtime head of the clothing manufacturer and retailer thinks the recent rally is just the beginning, as evidenced last week when he sunk $2.7 million into the stock.

On March 19 and 20, 2009, Chairman, President and Chief Executive Officer Dov Charney purchased 855,000 shares for $2.7 million, paying an average of $3.08 a share. He now owns 38.1 million shares, a 53.7% stake in the company.

Charney founded American Apparel's predecessor company in 1989 and has held his current positions since 2007. His purchase is the first by any insider since 2006, a year before the company became a public entity, according to data from InsiderScore.com. The company did not return e-mails seeking comment on the purchases. Although American Apparel, like most clothing retailers, has had a difficult year, its fortunes have improved dramatically of late.

In the last 12 months, the Los Angeles-based company's shares fell 59%, more than the losses suffered by the Dow Jones Clothing and Accessories Index (down 45.6%) and the overall market. However, year-to-date the stock has rallied significantly, gaining 80%, while the Index and the broader market have both lost more than 8%.

On Tuesday, March 24, 2009,  the shares lost 21 cents to $3.38. Lon Juricic, president of StreetInsider.com, notes that part of the reason American Apparel's stock has risen is its financing agreement with Lion Capital, which averted a possible bankruptcy.

"The company was in danger of defaulting on some of its debt, but got an $80 million loan from Lion Capital, which is familiar with the retail market, having invested in Jimmy Choo previously," he says. "However, the loan came at a hefty price, with 15% interest and warrants equal to an 18% stake that could dilute shareholders in the future."

Therefore, Juricic says, while near-term liquidity concerns have been alleviated, it is still a tricky play. "It's a big bet, especially coming after the stock soared last week; it looks like he is trying to boost confidence and break the backs of the shorts," he says. "Still, this is a risky investment, not for the faint of heart."

On the heels of the financing deal, American Apparel released fourth-quarter results on March 17. Although the results missed analysts' estimates by two cents per share, profit was up 30% from the year-ago period on improved margins and sales and growth in its retail businesses.

Further bucking the downsizing trend in retail, the company plans to open as many as 30 new stores in the coming year.

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AnnTaylor Stores (ticker: ANN) has released a flood of bad news this year, sending its stock down 23%. Two insiders, however, seem to believe in this year's spring collection; together, they bought nearly $900,000 in stock.

Chief Financial Officer Michael Nicholson and director James Burke, Jr. each bought stock over the past week. On March 13, Nicholson bought 100,000 shares for $348,000, or an average per-share price of $3.48. Burke purchased 125,000 shares on March 18, for $540,000, or $4.32 per share on average. Nicholson's buy appeared to have caught the attention of some investors.

AnnTaylor stock had jumped 12% within 20 minutes after Nicholson filed notice of his buys with the Securities and Exchange Commission. Burke's filing, which came in after the market had closed on Thursday, March 19,did not cause a similar uptick. Both own less than 1% of the company's stock.

AnnTaylor did not return a phone call seeking comment. Before Burke's and Nicholson's buys, few insiders had bought stock over the past two years at AnnTaylor. In general, apparel executives have steered clear of their companies' stocks during the downturn.

"The lack of buying in the space has been disappointing and disconcerting, which just makes Nicholson's purchase at AnnTaylor stand out even more," wrote an analyst at InsiderScore.com in a note. AnnTaylor shares have fallen 80% in the past year, versus about 34% for other clothing retailers.

The company sells mostly to professional women, and was particularly hard hit by the slowdown in consumer spending. It relied on massive promotions during the Christmas season, decimating margins. Same-store sales in the fourth quarter fell 29%. The brand has also lost some of its panache, some analysts say.

"Today's customer wants differentiation and trend-driven product; certainly the company has its share of challenges ahead given its historical more structured look," wrote Suntrust Robinson Humphrey analyst Robin Murchison, who rates the stock at Neutral, after the company's fourth-quarter results came out.The company acknowledges that it needs to update the brand, but blames its recent woes on the larger economic picture.

"While we have acknowledged that our product assortments could and should have been more modern and versatile, we believe that much of the softness we are experiencing relates directly to the impact the recession is having on professional working women," Chief Executive Officer Katherine Krill said on the company's fourth-quarter earnings call on March 6, 2009.

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Other investors are pulling their money out of hedge funds, but Daniel Och is increasing his stake in his own hedge-fund company.

Mr. Och, chief executive officer of Och-Ziff Capital Management Group LLC, bought about 1.57 million Class A shares for $7.1 million from Nov. 13, 2008, through Jan. 29, according to Securities and Exchange Commission filings. He bought the shares at an average price of $4.51 each.

Shares of Och Ziff are down about 80% from the 52-week high. In 4 p.m. New York Stock Exchange composite trading Tuesday, Och shares rose 20 cents, or 3.9%, to $5.31. Mr. Och's purchases are the first for the co-founder in open-market transactions since he helped take the New York hedge fund public in November 2007. He bought the shares under a plan he entered last November. Under securities regulations, Mr. Och and other insiders are able to set up plans that allow them trade shares even if they later acquire inside information.

"When [Mr. Och] entered into the plan in November, my assumption is that he felt the stock had gotten beaten up so much that it was undervalued," said Ben Silverman, director of research at InsiderScore.com, which tracks and rates insider transactions. An Och-Ziff representative declined to comment.

According to an SEC filing, the Och-Ziff chairman and CEO can buy as many as 8.5 million Class A shares under his trading plan. The document didn't specify the time frame or the price range for the purchases. Under federal regulations, even the existence of such plans needn't be disclosed.

Mr. Silverman said that at the current pace at which Mr. Och is purchasing shares, it may take him as many as two years to buy the 8.5 million shares. He said Mr. Och may have set an upper limit of $5 a share for his purchases, because he hasn't bought any shares at or above that price, though shares have traded above $5 since he began buying. Mr. Och, who directly owned only one Class A share before the recent purchases, now holds a 2.12% direct Class A stake in the company he helped launch in 1994.

Mr. Och, however, controls the company through a special class of supervoting shares.

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Company directors and executives bought nearly eight times as many shares in their companies in December 2008 as they did in December 2007. The buying spree, as compiled by Barron's Online using data from InsiderScore.com for buys over $200,000, wasn't echoed on the selling side. Excluding insiders who sold stock after exercising options, those whose sales were under $200,000, and executives who used prearranged selling plans, company insiders sold about $1 billion in stock in both years.

The uptick in buying came as Wall Street closed out with the third-worst year on record for the Standard & Poor's 500, which fell 38.5%. That's why even as the volume of buying has increased by eight times, the shares cost insiders a lot less than they did last year. The value of shares purchased by insiders in December 2008 was $643 million, as compared with $169 million in December 2007. The pricing data is skewed by one very large insider buy, Enbridge Energy, a Delaware corporation classified as a director of Enbridge Energy Partners (ticker: EEP) in its filings, bought $500 million in shares of Enbridge Energy Partners stock on Dec. 4. But even without this massive purchase, buying volume jumped sevenfold.

Very few insiders bought both years; Macerich (MAC), a mall owner, is one of the only companies where executives purchased shares in both December 2007 and December 2008. Those that bought last year got a much better deal; the stock fell more than 60% in 2008. Other than Enbridge, the largest insider buy came at small-cap Vector Intersect Security Acquisition, where President and Chief Executive Officer Yaron Eitan took down $12 million in shares on Dec. 12. Insider sentiment isn't a sure sign of a bottom, but some investors consider it a strong positive indicator for the market going into another uncertain year.

"You have a lot of stocks that were at the end of 2008 trading at levels that were way below replacement levels," says Anthony Marchese, general partner of the Insiders Trend Fund, a hedge fund that uses insider-buying trends to help it pick stocks. "So I'm not surprised that you see executives purchasing shares." Marchese says he will not invest in a stock where insiders have not been buying, though insider buying is only one indicator the fund uses to pick investments. The flurry of buying by insiders has prompted him to take more long positions, he says. Among the companies with insider buying toward the end of the year was American Shared Hospital Services (AMS), which leases high-end medical equipment.

"You've got a company which is profitable, it doesn't have any no-recourse debt, and it currently has cash of $1.90 a share and the stock trades at $1.30 or so and insiders are buying," he says. "That's the kind of company we like to look at." Observers of insider buys and sales tend to think buying is more predictive and easier to understand than selling. Insiders often sell toward the end of the year for tax purposes, for instance.

"There's lots of reasons why people may want to sell stocks," Marchese says. "Trying to figure out why someone is trying to sell stock is very difficult."

A report from InsiderScore.com in late November noted that insider sentiment had reached a 30-year high. The buying was spread across numerous industries, though the study found particularly high levels of buying in real-estate investment trusts and insurance companies. That report noted that previous spikes in insider buying -- in March 2008 for instance -- did not result in sustained bull markets. But strong insider buying has accurately predicted spikes in stocks before.

"Insiders remain long-term focused investors and insiders continue to speak more loudly with their checkbooks than their mouths," the report said. "Most importantly, insiders still have a solid track record of making directional market calls."

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