Although the threat of higher interest rates has put a serious damper on technology stocks--particularly Internet issues--technology executives don't seem to be panicking and selling shares at the current depressed prices.
Stocks like Metricom, Mindspring, Go2Net, PSINet, and even Yahoo (on a relative basis) continue to experience very low levels of insider distribution. That doesn't mean that insiders aren't taking the chance to cash in--just look at stocks like Dow component Hewlett-Packard, and Broadcom, Amazon.com, Peoplesoft, or Rambus.
As a general rule, insider selling in technology firms tends to pick up as the summer progresses. I am hoping high level executives don't use the first sign of a summer rally to aggressively sell shares in their own companies. Not only would this put supply pressure on some of the smaller, more thinly traded stocks, but more importantly, it would send a wrong message that the technology sector's current doldrums may not be so temporary.
These have been volatile times, and have made a lot of investors nervous.
It's been interesting to watch how insiders have responded to the recent market volatility. Compuware insiders, like their counterparts at many technology firms, appear to have a quarterly "window" period--a specific number of days in which they can freely sell shares. The fact that Compuware executives sold during both the January-February period (416,000 shares, priced between $30.22 and $33.06) and again during the May period (300,000 shares, priced between $26.02 and $31.50) is not particularly unusual.
What happened in between those two quarterly events, however, is what caught my eye.
Shares of Compuware plunged from a high $40 in January to $17 by April on concerns over slowing growth caused by the looming year 2000 deadline. Other enterprise resource planning stocks, such as Peoplesoft (down nearly 70 percent), have been even harder hit this year. However, Compuware has since staged a surprising comeback--rallying off its April lows to edge back toward the 30s. The stock crossed back above its 200-day moving average in mid-June--a positive sign for followers of technical analysis.
Compuware faithful point out that the company is well positioned in the rapidly growing mainframe market, which generates revenue not only from the sale of software applications but also from lucrative, long-term maintenance contracts. The Internet's increasing reliance on mainframe computers should create ample growth opportunities, they say.
From an insider trading perspective, seeing company executives sell shares at roughly the same prices on both sides of a market decline is an interesting event since it helps provide some valuation context. President Joseph Nathan sold 40,000 shares (on a split-adjusted basis) in January and another 110,000 in May. The May sales are not unusual; like many technology stocks, Compuware insiders are regular sellers of their own shares. Outside investors who bought the stock in the 30s earlier this year, however--only to see it drop to the teens before rebounding--are likely searching for directional clues.
Compuware insiders have demonstrated their willingness to sell shares between $26 and $33. The company is scheduled to report earnings on July 1. With strong recent earnings revelations from software giants like Oracle, many are expecting good news from Compuware.
Investors can carefully monitor the subsequent reaction of the company's insiders, as well as the earnings news, to gauge if more choppy waters potentially lie ahead.