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Following the market momentum

In the fourth quarter, momentum investors drove the market by bidding up share prices to record levels. I've spent a lot of time looking for technology stocks where a recent run-up is supported by a rash of insider buying.

In the fourth quarter, momentum investors drove the market by bidding up share prices to record levels. Following these actions, I've spent a lot of time looking for technology stocks where a recent run-up is supported by a rash of insider buying--a floor, essentially, to support the surge in stock price.

The presence of insider buying at lower prices helps to establish a floor, or price base, in the event that the rally stalls, or the stock's forward momentum is halted. During the quarter, bullish insider buying did indeed help signal the start of a price surge in these following issues.

One of the strongest clusters of insider buying for the month of November occurred at National Data Corporation, where four insiders purchased 26,800 shares from $28.31 to $31.94 per share. The company provides information systems and services for the health care and electronic payment system markets.

Chairman and chief executive Robert Yellowlees led the group, purchasing 14,500 shares on the open market. Yellowlees, who has been at the helm of the company since 1992, recently announced the acquisition of Envoy, a health care data processing company. This news sparked several "buy" ratings from Wall Street analysts, boosting the stock to the $40 level. Shares of National Data currently trade at $48.13 per share (as of January 4, 1999), after recently hitting a new 52-week high of 49--an increase of more than 25 percent in the past 30 days.

The same can be said for National Cash Register, the maker of transaction processing equipment, which is currently trading at a 52-week high of $41.81. (as of January 4, 1999). Chief executive Lars Nyberg has been credited in leading the company's turnaround efforts, including a move to eliminate computer manufacturing.

Nyberg has also increased his personal stake in the company, purchasing 8,000 shares on the open market at $25.13 per share in October. That purchase brought his common-direct position to a total of 29,720 shares. In that same month, senior vice president and general counsel Jonathan Hoak bought 3,000 shares between the prices of $25.00 and $25.75 per share.

Rounding out this list is network product maker Computer Network Technology, a provider of high-performance networking solutions for enterprise applications. President and chief executive Thomas Hudson displayed excellent timing in October of this year. Hudson emerged to purchase 5,000 shares at $3.98 per share just before a 10-point rise, to trade north of the $14 level. Shares currently trade at 12.63 (as of January 4, 1999).

Sell signals at Ascend?
I have received a number of inquiries about the level of insider selling at Ascend Communications. Ten company insiders have dropped 575,002 shares since late October--with proceeds in excess of $30 million.

Although there is increased attention on the stock and the networking group in general because of these actions, I believe the presence of this selling makes a near-term takeover of rival Lucent Technologies, which has been rumored for some time, a more unlikely event.

Putting the selling into perspective, Ascend insiders previously sold over two million shares during the first eight months of this year, with 1997 sales totaling 2,243,057 shares. My take is that the current selling--while interesting because of the stock's increased visibility--does not rise to the level of "abnormal" insider selling based on the firm's historical insider trends.

The insider selling at Ascend does stand in contrast to selling at Lucent, however. Despite an impressive advance, there has been only one insider sale of 36,992 shares at the company since July. Lucent insiders appear reluctant to part with shares--a potentially bullish comment on the stock's future direction.

Technology insiders are typically frequent sellers of their own shares, often on a regular quarterly basis. This recent reticence to sell by Lucent insiders stands out as interesting anomaly.