THE BLOG
11/26/2010 11:38 am ET | Updated May 25, 2011

Cisco Insider Sales Raise Eyebrows

Call it luck, skill, an ability to somehow peer into the future or what have you.

Any way you look at it, it was a marvelous display of market timing in the shares of one of the country's leading technology names, the kind you would expect from some of Wall Street's most skilled and savviest traders.

In any case, every one of the nation's more than 80 million stock owners should be so lucky -- that is, to fortunately dispose of a big chunk of a company's shares they happen to own prior to a sudden and unexpected disclosure of bum tidings that sends the stock price skidding.

This stroke of good luck occurred to six corporate insiders (officers and directors) of network and communications equipment biggie Cisco Systems -- a darling of institutional investors -- who unloaded nearly 325,000 of the company's shares in August, September and October for net proceeds of about $9.3 million.

Why so lucky? Because on November 10, after the market closed, Cisco unleashed a shocker, namely that revenue growth for its second fiscal quarter ending in January would be weaker than Wall Street expected. It forecast just a 3% to 5% gain from year-earlier levels, less than double the Street's projected increase.

In turn, Cisco's shares got hammered the next day as the stock ran into a selling blitz that knocked it down a wicked $3.97 a share to $20.52 from its Nov. 10 close of $24.49. That selling continued on November 12 as the stock shed another $0.37 to $20.15, all told representing a two-day loss of $4.34 a share or roughly 17%.

So thanks to their timely selling, those lucky Cisco insiders who dumped the nearly 325,000 shares -- actually 324,953 -- saved themselves a little over $1.3 million during that two-day decline.

Interestingly, the insider sales occurred right around Cisco's stock 52-week low. These sales ranged in price from $21.57 to $24.50, with an average selling price of $22.92. The stock is currently trading at around $19.60.

The most conspicuous and biggest selling insider was Cisco's chairman and chief executive officer, John Chambers, who sold 243,178 shares or 13.8% of his holdings, in mid-August.

The other sellers were Cisco general counsel Mark Chandler, Cisco vice presidents Robert Lloyd and Gary Moore, director Jerry Yang, co-founder and former CEO of Yahoo, and director Larry Carter.

Those sales raise an obvious question: Did any of the selling insiders have any inkling of that potential revenue shortfall? Likewise, were any of the recent insider sales scheduled in advance?

I'd love to know the answers. I tried getting some response from Cisco, but no luck. The company refused to respond to calls seeking comment.

Jonathan Moreland, the editor of Insider Insights, a newsletter tracking the buying and selling activities of corporate insiders, says Cisco's brisk insider sales were a huge red flag to investors to stay away from the stock, that something might be wrong.

One Cisco shareholder who called my attention to the company's heavy insider sales in recent months prior to the revenue disclosure wrote that she plans to write a letter of complaint to the Securities and Exchange Commission and ask them to investigate the selling.

Interestingly, when insiders buy or sell en masse, they're said to be generally right about 80% of the time in signaling a direction of the market and an individual company's stock.

In the case of Cisco, the company insiders were dead right again.

What do you think? E-mail me at Dandordan@aol.com.