Sand Spring Advisors LLC
Philip Morris: Insider Selling Galore
May 13, 2002
by, Barclay T. Leib
By now, everyone knows that Philip Morris (NYSE symbol: MO) is planning to change its name to some generic sounding puffy piece of twenty-first century PR. In addition,Philip Morris was busy in 2001 arranging the re-IPO of Kraft Foods, the repurchase of $4 billion worth of stock, and the raising of its dividend by 9.4%.
All of this is part of a huge corporate makeover in the works, and Philip Morris is never a stock to be trifled with. If one checks the long-term league tables, MO is, I believe, the best all-time performer currently listed on the New York Stock Exchange.
And yet, a quick perusal of insider trading of MO will reveal that not a single corporate director or high level employee has been busy buying the stock over the past year. One must go back to early 2000 to find just one small insider stock purchase. Since then, there has been a consistent pattern of option exercises followed by almost immediate sales, planned sales, non-market sales.
So is one to believe the company's bullish hype in its corporate makeover as it still struggles to put tobacco litigation cases behind it? Or is one to believe the manner in which its corporate directors are actually voting with their wallets? This may be a test to see if the investing public has learned anything about the message behind constant insider selling as evidenced in the Enron affair.
Turning to our technical use of Fibonacci bands, Philip Morris presents one of those cases where stretching our Fibonacci bands to extrapolated highs or lows is not appropriate at this time. Instead, the bands already fit our recent price action beautifully when drawn between this stock's late 1998 high and early 2000 low. It implies to us that we are at the still early stages of defining a huge monthly pennant formation -- the next leg of which will be down.
Philip Morris thus joins many other big-cap stocks at this time such as Johnson & Johnson, General Motors, Proctor & Gamble, and Pfizer as appearing fully baked and vulnerable to a significant and immediate decline.
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