Insiders Sales at Ford (F) May Indicate a Short-Term Top

After the close Friday there was a flurry of insider sales disclosed in shares of automaker Ford Motor (NYSE: F). The sales for many of the executives coincided with the exercising of stock options received years ago that are finally in the money.

With shares of Ford up over 700% from 52-week lows, these executives appears to be cashing in on the company's new found success. As the only major U.S. automaker to avoid a government bailout, Ford has been stealing market share from the others and was the first to turn a quarterly profit.

Here is a summary of the sale transactions:

• Executive Vice President Michael Bannister sold 231,092 shares on 1/7 at $11.48 after exercising options at $7.55
  
  
• Group Vice President Thomas Brown sold 267,633 shares on 1/6 at $11.21 after exercising options at $7.55
  
  
• Group Vice President Joseph Hinrichs sold 21,499 shares on 1/6 at $11.40
  
  
• Group VP and General Counsel David Leitch sold 231,092 shares on 1/6 at $11.19 after exercising options at $7.55
  
  
• Group Vice President Ziad Ojakli sold 38,167 shares on 1/6 at $11.36 after exercising options at $6.14
  
  
• Group Vice President Nicholas Smither sold 73,118 on 1/6 at $11.34 after exercising options at $6.14-$7.83

Investors now need to ask themselves, do the insider sales indicate a short term top in the shares or will they continue their run higher?

Our view is that the insider sales raise a short-term caution flag on the red-hot stock. While earnings are continuing to improve, the stock is already trading at a premium multiple to uncertain earnings. While earnings power could go to as high as $2 per share, which could justify a $24 price target, this is still uncertain and won't happen until at least 2011 at the earliest. While it is easy to argue the stock is worth more, it is equally as easy to argue the shares are fairly valued at 12x likely $1/share in earnings. All in all, the insider sales should give investors some pause in putting new money to work in the stock. If you hold the stock and bought before the major bounce you can probably risk holding them. If the stock corrects back below $10 this may be a good entry point for new money.

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