Picking tech stocks? Follow the money

When execs buy or dump their company's shares, something's up. Craig Columbus has been watching insider trading patterns in the semiconductor field.

3 min read
As last year drew to a close, executive trading patterns became significantly more bullish across all sectors of the technology business.

In fact, December turned out to be the most bullish month in more than a year. With investors still trying to see their way past the current cloud storm, do these insiders know something about how the near future is going to shape up?

Clearly, bullish sentiment within the ranks of technology executives has been on the rise since October--though an apparent increase in the last two months of 2000 was more likely because of a decline in the level of selling than because of any sharp uptick in insider buying.

Let's focus on the semiconductor industry, which experienced record levels of selling in February and August. That activity was right in line with the usual pattern of insider activity in the tech sector, and semiconductor insiders became more bullish as the year wore on. (Again, it is important to note that this was due primarily to low levels of selling by semiconductor executives.)

To be sure, the magnitude of insider buying within the semiconductor sector can best be described as "nibbling." Consider that while the Dow Jones U.S. Semiconductors Index declined 35 percent in the last six months of 2000, the S&P 500 fell less than 10 percent during the same time period. That put semiconductors in the second-worst-performing industry since early August--even lagging behind the woeful performance of communications equipment makers.

Buying opportunities?
Considering the current depressed price level of so many tech stocks, now would seem to be a good time to buy. And so we've noticed increased trading among semiconductor executives buying shares of their companies' stock.

Viasystems Group makes multi-layered printed circuit boards used by such companies as Lucent Technologies to connect semiconductor and integrated circuit components in electronic devices. Four Viasystems Group executives bought a combined 135,000 shares from Dec. 21 to 22 at prices ranging between $7.25 and $7.55. Chief Executive James Mills and Director Kenneth Yontz each picked up 50,000 shares. Director Richard Vieser and Chief Financial Officer David Sindelar purchased 20,000 and 15,000 shares, respectively.

This was the largest consensus buying at the company since its IPO early in 2000. At its current price of $8.65 (when this column went to bed) the stock is up 17 percent since December, suggesting pretty good timing on the part of these lucky executives.

In a similar vein, consider the example of Emcore, which makes specialized integrated circuits. In December three of its insiders made big purchases. Between Dec. 12 to 28, Vice President Richard Stall, Director Thomas Miehe and CFO Thomas Werthan bought 63,000, 4,000 and 1,000 shares respectively at prices ranging from $44 to $53.

This was the first consensus buying at the company since August 1998. Stall's trade, worth more than $2.7 million, was the largest acquisition by an Emcore insider to date. Company shares were down nearly 50 percent from their February high at $86 when these executives completed their transaction. The stock has since continued to fall to the high $30s.

At Amphenol, two top executives purchased a total of 6,000 shares from Dec. 18 to 26 at prices between $34.50 and $41.94. Chairman and CEO Martin Loeffler picked up 5,000 shares, while General Counsel Edward Wetmore added 1,000 shares.

These were the first insider additions at the company since mid-1999, and Loeffler's purchase was the firm's largest ever. The accumulation occurred after Amphenol stock fell sharply from mid-July when it was in the $70 range. APH shares hit a 52-week low of $32 on Dec. 20, but then rebounded to the mid-$40s.

It's been a tough go-round for the semiconductor industry. Nonetheless, despite the deflation in the price of their companies' stock price, insiders at firms such as Intel, Texas Instruments and Cree did not join in the December buying spree. In fact, they have not acquired shares since 1999.

Insider stock buying at the smaller firms signals a degree of bullishness not witnessed in this industry for some time. Continued purchasing by semiconductor insiders would definitely point to a potential reversal of fortune for this group of stocks. But we will have to wait for the upcoming filings of January trades to know whether this is indeed the case.