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Insiders buy on the dip

Times have been tough for many technology stocks. The recent steep decline in a number of leading tech issues, however, has presented potential buying opportunities.

Times have been tough for many technology stocks. The recent steep decline in a number of leading tech issues, however, has presented potential buying opportunities.

Take Compaq Computer, for example. Six company insiders did some bargain hunting at $23.13 to $24.25, picking up 18,260 shares. Compaq executives were slammed in the press for selling large blocks of shares in February at prices between $41.44 and $47.75--before the company warned Wall Street of rising inventories and falling margins. Cynics would argue that the number of shares purchased pales in comparison to the level of selling earlier in the year, but it certainly is encouraging to see at least some insider interest in owning depressed tech issues.

Tracking this type of buying activity can be a profitable exercise. Consider Wind River Systems, once a darling of the embedded software market. Wind River shares tumbled after the company warned it would fall short of analysts' consensus estimates for the April quarter. Director William Elmore took advantage of the drop to buy 25,000 shares at $14 to $14.75--the first-ever insider purchase at the company. Elmore was actually a seller of 20,000 Wind River shares back in June of 1997 at $32.74 to $34.25. In a little over a month, the stock has gained over 30 percent, and several analysts are again pounding the table on Wind's long-term prospects.

Telecommunications companies, however, have been on a hot streak. It should come as no surprise that this group is also experiencing the heaviest insider selling. Although insiders sell these stocks on a regular basis, the sell numbers have recently increased. Many of these stocks have enjoyed a terrific run. However, many question whether the boom in fiber-optic cable buildouts will outstrip the current demand for broadband services.

Shares of Abovenet Communications, an Internet access provider, began trading on the Nasdaq in December at $8.38. Within five months, shares jumped 800 percent to a high of $75.50. However, by the end of April, Abovenet shares had given back 47 percent to trade around $40. At that time, Abovenet announced a public offering of an additional 4 million shares. The company provided 2.8 million of the total offering, with current stockholders supplying the remaining 1.2 million shares. Based on recent SEC filings, 13 Abovenet executives participated in this offering by disposing 981,578 shares at $40.06. Director Tom Shao (148,962 shares), director Peter Chen (100,000 shares), and CEO Warren Kaplan (77,000 shares) were the largest sellers in the group. Although the shares were down from the April 12 high, the corporate insiders were able to pocket a gain of 378 percent from the IPO.

A similar "selling into the strength" situation has unfolded at Exodus Communications, another enterprise provider of Internet access. Trading at the $20 level in December, Exodus shares shot up to $109 by mid-April. While the stock traded near its high that month, seven insiders shed 474,600 shares at $87.28 to $98.47. Director Thadeus Morcaski accounted for the majority, by selling 320,500 shares. Although the size of this trade is quite substantial, it pales in comparison to Morcaski's early sale in February of 3,886,926 shares. During that time, the stock was trading in the $40s.

We've also noted some significant insider selling within the wireless segment, with the most notable activity occurring at AirTouch Communications and Qualcomm.

Back in January, AirTouch, the nation's second-largest provider of cellular phone service, agreed to be acquired by Britain's Vodafone Group in a deal valued at approximately $60 billion. Since the deal was first announced, AirTouch shares are up only modestly, yet AirTouch insiders have been aggressively reducing their holdings.

Most recently, six executives disposed 556,029 shares at $95.25 to $97 between April 26 to 30. Two months earlier, seven AirTouch insiders sold 1,175,730 shares at $87 to $94. During both occasions, the largest seller was CEO Sam Ginn, who sold 375,000 shares in April, and 510,485 shares in February. The level of insider selling has not affected the performance of AirTouch shares, trading near its 52-week high of 107.6875 (as of May 24).

Over the past two months, Qualcomm shares have been on a tremendous tear, gaining 150 percent from $40 to $100 (adjusted for a 2-for-1 split on May 10). Executives at this leading provider of digital wireless products have been very eager to take some profits. During the last week of April, twelve insiders combined to sell 1,080,360 shares with an approximate market value of $104 million. Vice chairman Andrew Viterbi led the consensus by disposing 638,000 shares. Earlier in February, five company insiders sold 519,000 shares (split adjusted). The current sales are more compelling when you consider that during last year the total number of shares sold was 388,031.

Additionally, recent insider distribution has also occurred at other prominent telecom firms including Alltel, AT&T, Bell Atlantic, DSP Communications, General Instrument, Global Telesystems, Metromedia Fiber, Nextlink, Polycom, SBC Communications, Sprint, and MCI WorldCom.

Disclosure's co-director Lon Gerber contributed to this column.