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Published: June 1, 2010
Company executives may not know much about
the stock market. But they know plenty about their own business.
That’s why many investors track their every move. When these
insiders notify the Securities and Exchange Commission that they
have just bought company stock, investors sit up and take
notice, because future results may be brightening. But few
investors pay heed to sales of stock by these insiders. That’s
because there’s usually a lot more selling than buying, as these
insiders often are simply taking profits from stock option
grants.
Well, just last week, we saw more insider purchases than insider
sales, according to InsiderInsights.com. The net positive
reading hasn’t been seen in some time. In fact, the last time
insiders posted such a bullish bet on stocks was in April 2009 -
just a month after the powerful rally began. Many of the recent
buying transactions appear to be coming from companies that have
seen their shares sharply pushed off their highs, even as the
fundamental outlook for the company is unchanged.
But the folks at InsiderInsights bring a
caveat: executives at companies are often a bit naive when
anticipating how their stock will fare in the near future. Their
insider buying activities tend to pay off, but only over the
medium or long-term. In fact, history has shown that an
increasing number of insiders can step in to buy their shares as
a market falls further and further. So for many investors, it
pays to brush up on the companies that seeing heavy insider
buying, but hold off jumping in until you think the market has
stabilized.
Action to Take --> There are
a few other items to monitor. First off, you should be heartened
when several executives at a firm do some buying. Look for
buying clusters by the chief executive officer, the chief
financial officer and any board members. In addition, you may
want to look at their track record. Various websites will tell
you when insiders bought and sold in the past. And you can go
back and see how those trades panned out. You want to mimic the
insiders who have a history of buying their own stock closer to
lows and selling closer to highs.
Not surprisingly, executives of oil and gas firms that are
squarely focused on land-based drilling and oil and gas
transport have been active buyers of their stock lately. That’s
because they’ve been tarnished with the same brush as their
offshore-focused peers. Names in the space include PetroQuest
Energy (NYSE: PO), which just saw more than $10 million in
insider buying and Crosstex Energy (Nasdaq: XTEX), where
insiders recently spent $13 million on their company’s stock.
Insiders will occasionally buy their own stock even when it’s
trading well above the lows, as they see a future that is even
brighter than analysts expect. Insiders picked up more than $6
million in stock at American Superconductor (Nasdaq: AMSC)
at around $30 a share, even though shares had been closer to $25
a few weeks earlier. In a similar vein, four different insiders
bought a collective $8 million in stock at Loral (Nasdaq:
LORL), a satellite services provider, even as shares sit at
twice the 52-week low.
-- David Sterman
Contributor
StreetAuthority |
