Paying attention to insider activity is one effective way of ascertaining whether or not individual investors should cash in as well. Even more attention should be paid when buying and selling comes from a highly respected, shareholder oriented executive like the co-CEO of Whole Foods (Nasdaq:WFM) John Mackey. And when such an insider is selling when shares are at a 52-week high, it may be time for investors to see the writing on the wall.

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A Healthy Comeback

Last week, Mackey disclosed that he sold 50,000 shares of Wholes Foods at an average price around $90 a share. That price is just below the company's 52-week high price of $91.50 a share. Whole Foods has surprised everyone with its strong recovery coming out of the recession. Often dubbed "Whole Paycheck," Whole Foods is known for its higher quality, yet pricier grocery and wellness products. With consumers becoming more and more frugal, Whole Foods has proven that its customers are very loyal to the company, its products and the mission of a healthy lifestyle. Consider that at the height of the recession and the market sell-off around January 2009, Whole Foods shares were trading for about $10 a share. Net income has nearly tripled from around $118 million in fiscal 2009 to over $342 million at the end of fiscal 2011.

The Stock Vs. the Business

Whole Foods remains an excellent company with a phenomenal future ahead of it. But a great business does not necessarily make the stock a great investment. In fact nothing is more painful for an investor than to see a company do well only for the stock to languish. Today, Whole Foods shares trade at almost 40 times earnings and while Mackey's share sale represents a small fraction of his overall share ownership, he is selling at an attractive price, which happens to be near the highest price shares have ever traded at.

SEE: What Investors Can Learn From Insider Trading

The Bottom Line

Investor discipline is required to separate the company from its underlying share price. Whole Foods is a company I admire and regret not investing in years ago, but markets are near all-time highs today and Whole Foods' shares have followed suit. Other excellent businesses with no so excellent stock prices included names I love like Chipotle (NYSE:CMG), trading at over 55 times earnings, Panera Bread (Nasdaq:PNRA) and Starbucks (Nasdaq:SBUX) both trading at a price-earnings ratio of around 31. These dynamic concepts have seen business surge rapidly over the past couple of years and the shares have surged even higher. Not surprisingly, you find little or no insider buying in these companies. And don't be surprised if more CEOs follow Mackey's lead.

Use the Investopedia Stock Simulator to trade the stocks mentioned in this stock analysis, risk free!

At the time of writing, Sham Gad did not own shares in any of the companies mentioned in this article.
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