Dow Stock All-Time High; Insiders Sell $17 Million, Acquire $44 Million
Wall Street Analysts Misjudge the Positive Point to Recent Transactions
February 13, 2005
By: Dave Rogers
In stark contrast to some Wall Street forecasts, Dow is on the verge of unprecedented prosperity.
Wall Street analysts apparently have badly misjudged the recent insider trading activity at Midland's Dow Chemical Company, failing to report acquisition of $44 million in stock or options by insiders.
The nation's largest chemical firm has slashed 6,700 jobs, raised prices and controlled spending to widen profit margins despite a 50 percent spike in feedstock energy costs.
In stark contrast to some Wall Street forecasts, Dow appears to be riding a wave of productivity increases and sales demand, especially from China, and is on the verge of unprecedented prosperity.
A review of SEC filings on line reveals that 11 Dow management insiders recently acquired 852,269 shares or options to purchase Dow stock, with total value of $44,019,693 at the recent price of $51.65 per share.
New York securities analysts recently chided the firm in news reports for lack of insider buying, indicating a potential weakness in the stock.
Reuters quotes Jonathon Moreland of InsiderInsights.com: "From an insiders point of view the stock obviously doesn't have a bullish profile." Additionally, Mr. Moreland allows: "However the executives are not running for the exits completely, they still have holdings in the company and looking at fundamentals this is a stock with excellent earnings growth predicted for the next two years."
"When you see more company executives selling than buying their company shares it suggests that they do know something about the true value of shares," said Michael Panzner, of Rabo Securites, quoted by Reuters on Feb. 10. "It wouldn't give comfort to investors to see insiders selling."
While eight insiders sold 350,000 shares valued at about $17 million, 11 others acquired shares valued at more than twice that amount. Some of the shares acquired were in stock options either purchased at a fraction of the recent price or granted apparently as bonuses for executive performance.
Some analysts were quoted as saying the recent trading of $17 million in Dow stock by insiders "looked like routine profit taking."
An analyst from National City Wealth Management, which owns 2.5 million shares of Dow stock, said "I do not fault managers taking profits and redistributing wealth." Similar activity occurred a year ago, he said.
Dow stock hit an all-time high of $51.94 on Feb. 7, buoyed by reports of quarterly earnings above expectations and expected higher prices for plastic construction materials and chemicals used in the paper industry.
The SEC reported insider trading this year by the following executives in amounts shown: Chairman William S. Stavropoulos, sold 101,319 shares for $5.13 million; J. Pedro Reinhard, chief financial officer, sold 55,718 shares for $2.82 million; Fernando Ruiz, vice president and treasurer, sold 37,000 shares for $1.86 million; Gary R. Veurink, vice president, sold 6,687 shares for $339,000; Lawrence A. Washington Jr., vice president, sold 18,590 shares for $944,000; Arnold Allemang, senior advisor, sold 26,423 shares for $1.31 million; Richard Manetta, vice president and special counsel, sold 98,900 shares for $4.89 million; and David E. Kepler II, vice president, sold 6,178 shares for $307,000.
Acquisitions by exercise of stock options or options granted reported by the SEC included 262,500 shares by Mr. Stavropolous; 20,400 by Mr. Veurink; 47,546 by Romeo Kreinberg, senior vice president; 98,900 by Mr. Manetta; 19,500 by Mr. Kepler; 26,423 by Mr. Allemang; 1,500 by Andrew Liveris; 37,900 by Mr. Ruiz; 55,500 by Mr. Washington; 281,500 by Mr. Reinhard; and 1,500 by Luciano Respini, vice president-Europe.
Dow, the No. 1 U.S. chemical manufacturer, on Jan. 26 reported a 10 percent improvement in earnings, gaining $5.3 million in margins over the past two years through cost-cutting.
CEO and President Andrew Liveris told the Dow Jones Newswires that a 28 percent increase in selling prices was the key to raising net income for the year to $1.03 billion, or $1.06 a share, from $929 million, or 99 cents a share, the previous year.
One cloud in the otherwise bright Dow horizon may come from a class action suit filed by an California law firm against Dow and several other chemical firms, BASF of Germany, Bayer, Huntsman and Lyondell, charging price fixing through a "chemical cartel."
According to court filings, the firms allegedly agreed and conspiredto fix prices on polyether polyols, MDI and TDI. The filing alleges the cartel has been in effect since January, 2000.
This same law firm is heading the class action litigation against pharmaceutical giant Merck over the drug Vioxx.###