Insiders Hit Flash Point
Corporate insiders are rapidly changing their minds about the value in their own stocks. That could be bad news for the struggling market rally.
The Insiders newsletter of Ft. Lauderdale tracks the number of insiders buying and selling their own companies’ shares. The insiders must publicly disclose their transactions in filings with the Securities and Exchange Commission.
As the stock market sank in October and early November, insiders were wildly snapping up their own shares--a clear sign that they felt that the stocks were dramatically undervalued. The Insiders newsletter’s “Flash index,” which measures insider transactions over the most recent 30 days, counted nine buyers for every one seller in October. That 90% reading was an all-time high--and it coincided with the start of the market’s recent rally, which has lifted the Dow Jones industrial index to 2,593.81 as of Friday, from 2,365 in October.
But in the past few weeks, insider buying has been on the wane. The Flash index tumbled to 75% buyers by Dec. 4. And as of Dec. 12, the latest available, the index was 60%, says Norman Fosback, editor of the Insiders.
Worse, a shorter-term Flash index, measuring trades over the past 20 days, fell to 52% last week, Fosback says. That still means 52% buyers to 48% sellers, but it’s obvious that stock prices aren’t nearly as interesting to insiders as they were at October’s lows.
Does the slide in insider buying mean that the rally is over? Fosback doesn’t think so. “If the index were a lot lower, I’d be concerned,” he says. Still, the rate of drop in the buying in recent weeks is very steep and bears watching, he admits.
Teradata’s Rising Star: Teradata Corp., the Los Angeles-based computer firm, is in the middle of the hostile takeover battle between American Telephone & Telegraph Co. and NCR Corp. From Teradata shareholders’ viewpoint, the middle isn’t such a bad place to be.
NCR owns 9.4% of Teradata and has been working closely with the company on new technology. The two firms have side-by-side operations in San Diego as part of a joint development agreement.
AT&T; wants NCR for the company’s computer technology. Because Teradata’s expertise is key to NCR’s technology, AT&T; in essence needs Teradata almost as much as it needs NCR. What’s more, AT&T; is already Teradata’s largest customer.
What this tangled web means, basically, is that Teradata probably has much greater value than the stock market currently is assigning it--but maybe not in the short term. The stock closed at $12 Friday, up 75 cents for the day. It has rebounded from a low of $6.75 in November but remains far below its 1990 high of $35.50.
Teradata’s computers are very high-priced systems known as relational database computers, which allow users such as AT&T; to keep track of trillions of data bits. After Iraq invaded Kuwait, and recession fears mounted in September, orders dried up as many corporate customers delayed capital spending decisions.
The result: Teradata reported a loss of 50 cents a share in the quarter ended Sept. 30. A turnaround in profits may not arrive until mid-1991, because customers are likely to remain cautious about spending. Rick Martin, analyst at Prudential-Bache Securities, sees earnings of just 25 cents a share for the year that will end next June 30. The company earned $1.25 a share last year.
Some traders who have jumped into Teradata stock recently are betting that either 1) NCR will bid for all of Teradata, as a way to make itself too expensive for AT&T;, or 2) AT&T; will win NCR and eventually swallow Teradata as well.
On Friday, NCR rejected AT&T;’s $6.1-billion offer. But some analysts say it would make little sense for NCR now to buy all of Teradata to try to halt AT&T.; Even if NCR were to bid $35.50 a share for Teradata--the stock’s all-time high--the price would come to just $540 million. It’s hard to imagine that such a merger would decrease NCR’s attractiveness, when AT&T; itself spends millions of dollars on Teradata systems.
“For both of these companies (AT&T; and NCR), Teradata is very strategic,” says Jim Reynolds, analyst at Wedbush Morgan Securities in Los Angeles.
As for a potential purchase of Teradata by AT&T; down the road, analysts caution that AT&T; wouldn’t need to buy the entire firm to reap the benefits of the technology. And, in fact, folding Teradata into AT&T; might ruin Teradata’s entrepreneurial spirit.
So it’s clear that any bet on the stock now should only be for the long term. The firm’s sales success--from $17 million in 1986 to $224 million in the recent fiscal year--shows that its systems have enormous acceptance. The interest in Teradata by NCR and AT&T; merely confirms the potential in the technology. So beyond the current economic slump, there’s good reason to assume that the firm’s sales will rebound. But until the orders begin to flow again, the stock could languish--and a takeover seems remote.
WHERE SELLERS REIGN
Among NYSE stocks, insiders have sold these heaviest over the past year. Some issues show heavy selling because insiders got generous stock options.
Number of insiders: Stock Buying Selling General Motors 2 40 Motorola 3 33 Procter & Gamble 3 23 Gap Inc. 0 21 U.S. Surgical 0 20 Baxter Intl. 0 19 Humana 2 18 Readers Digest 7 18 Wal-Mart 2 18 Dillard Dept. 1 11
Through Dec. 4. Open-market transactions only.
Source: The Insiders newsletter
