Although this may have sounded like heresy a while ago, we are approaching what is traditionally a tough couple of months for all technology stocks.
Last week's price drop in technology stocks was not really that surprising. These shares frequently stumble in the spring (after often recording impressive gains from November to January), and then again in the late summer. Whenever investors try to convince themselves that somehow, this time is different, and there won't be a dive--seasonality has a way of reminding them that a drop is often unavoidable.
Nor was it that unusual to see corporate insiders taking profits in tech stocks as we approach these historically vulnerable periods. Some of the technology firms with the highest dollar value of insider selling in December--such as 3Com, Jabil Circuits, Cisco, and Oracle--were looking ahead in anticipation of some of their traditionally weakest months for stock performance. It was also an ideal time, granted, to reap some of the benefits of a terrific three-month surge in each of these issues.
Some of the largest technology insider sellers for the month of December included Cisco Systems (775,000 shares), Oracle (1,240,940 shares), Network Appliances (851,806 shares), Jabil Circuits (545,400 shares), and 3Com (230,000 shares). Each company has witnessed its stock price stumble a bit over the last couple of months.
Taking a look at five-year average monthly returns, the period from January to March has been by far the weakest time of the year for 3Com stock performance, at -13 percent for February alone. February and March are the only months in which Cisco experiences negative average returns (-1.2 percent and -2.1 percent respectively). Jabil Circuits has historically fallen on hard times between December and March--with the stock's only three negative monthly returns falling in that time frame (-14.4 percent for December, and -9.8 percent for January).
February has already been unkind to 3Com, with the stock slipping nearly ten points in the first two weeks of the month. The company has felt some heat from Cisco, which has been encroaching on 3Com's core market, namely small and medium-sized businesses. Insider selling had dried up at the company between April and October, with the totals running far below normal levels. However, top 3Com insiders were selling the stock fairly aggressively in December--$10.6 million worth--after essentially doubling in price from its October low.
Cisco insiders are regular quarterly sellers--somewhat mitigating their December distribution. But, the dollar value of insider shares sold in December at Jabil Circuits, Oracle, and Network Appliances eclipsed the total for the prior eleven months at each of those companies.
High-level executives led the selling activity at Network Appliances in December. Chief executive Daniel Warmenhoven and chairman Donald Valentine sold 100,000 shares for $7.5 million, and 646,812 shares for $50.4 million, respectively. Vice president M. Helen Bradley also participated by selling 60,000 shares, while director Carol Bartz sold 44,994 shares. In November, financial chief Jeffry Allen dropped 20,000 shares at prices between $72.95 and $75.19--after exercising options on 20,000 shares at a price of $18.56. All the sales occurred prior to the company's December stock split.
The vast majority of the recent insider sales at Jabil Circuits were attributable to the company's two highest-ranking officials. During the final ten days of the year, CEO William Morean sold 300,000 shares at prices ranging from $69.63 to $73.38. Several days earlier, president Thomas Sansone sold 226,100 shares at $68.25 to $71.06.
Prior to last week's market dip, the Morgan Stanley High Tech Index had appreciated 64.5 percent, compared to the broader S&P 500 Index, which had risen only 16.5 percent over the same time period.
This strong performance was distributed throughout the sector, as gains were seen in the semiconductor, networking, computer hardware, and computer software industries. The companies with the highest levels of insider selling have all participated in the climb: for example, Cisco Systems shares rose 77.1 percent. Stock in Jabil Circuits jumped 54.3 percent, while Network Appliance added 93.6 percent. Oracle shares gained 87.3 percent in the period.
Actions by company insiders, however, indicate their concern that the February-April technology slump may once again reappear.