With Insiders this Bullish, the Stampede Is Not Over
This article is from the archive of The New York Sun before the launch of its new website in 2022. The Sun has neither altered nor updated such articles but will seek to correct any errors, mis-categorizations or other problems introduced during transfer.
Every stock market rampage inevitably winds down. Judging from the most informed investors around, though, the current one is nowhere near quitting time.
That’s the clear reading I get from a trio of dogged trackers of insider activity — buying and selling by officers and directors of their own companies’s shares. Their unmistakable message, based on their latest market actions, is that the bull run is far from kaput.
The figures tell the story. The amount of insider selling — which, because of the steady exercising of options, has historically overwhelmed the amount of insider buying by a factor of about $20 to $1 — shows a clear declining trend, according to liquidity tracker TrimTabs Investment Research of Santa Rosa, Calif.
According to their numbers:
• Over the past eight weeks, insider sales averaged $2.6 billion a week, down 16% from a $3.1 billion average during the eight-week period that ended March 29.
• In the first five months of 2007, net insider sales stood at $48.7 billion, down 24% from the same 2006 period.
“It’s another positive liquidity sign and it tells you insiders are not looking for any significant decline,” the TrimTabs president, Conrad Gann, said.
The research firm’s chief executive officer, Charles Biderman, also sees a very bullish signal. “Insiders,” he contends, “are telling you stocks are cheap, I mean very cheap, based on valuations, liquidity trends, earnings prospects, and the strength of the economy.”
The chief tracker of insider activity at Thomson Financial, Mark Lopesti, also sees insiders flashing bullish signals. Noteworthy, he points out, is a more positive saleto-buy ratio. Last month, for example, insiders sold about $40 worth of stock for every dollar they bought, which is double the current rate and a sharp drop from the $70- to $80-to-$1 ratio of last November.
Yet another sign of insiders’ market optimism can be seen in the improved tempo of insider buying. In May, Mr. Lopesti observes, insider purchases more than doubled, to more than $150 million, from $63 million in April. In addition, he points out that we’re not seeing meaningful reductions in equity holdings.
In terms of individual stock groups, Mr. Lopesti notes solid buying interest among insiders in financials, high- and low-yielding real estate investment trusts, utilities, and energy, notably producers, explorers, and refiners. At the same time, he points to selling among executives in technology, health care, the consumer discretionary sector, drillers, and industrials. By and large, he notes, insiders are taking profits by selling into strong momentum.
Looking at some of the past week’s top insider purchases and sales, Thomson points on the buy side to Aflac, Polo Ralph Lauren, Advanced Environmental Recycling Technologies, and Premiere Global Services. On the sell side were Cardinal Health, Google, TRW Automotive, NBTY Inc., and BMC Software.
Another analyst, Jonathan Moreland, has been tracking insider activity for two decades. While his latest reading suggests mixed messages on the overall market, significantly, he said, insiders are flashing buy signals on a host of individual stocks. As a result, the model portfolio of Insider Insights, his online weekly newsletter, is 95% invested.
The newsletter boasts an imposing record for its stock recommendations: market-beating gains of 12.9% for the year to date, 50% in the latest 12 months, and 186.4% since its inception on September 4, 2001. In addition, the country’s leading tracker of the performances of investment newsletters, the Hulbert Financial Digest, reported that Insider Insights was the sixth-best performing newsletter last year, posting a gain of about 30%.
Mr. Moreland, who focuses on small- and medium-cap stocks, is particularly enthusiastic about the biotech sector, which represents 15% of his recommended list. Included here are such names as Sequenom Inc., Discovery Labs Inc., Cerus Corp., and Clarient Inc.
Energy-related stocks make up another 5% of the portfolio, namely Goodrich Petroleum, TXCO Resources Inc., and Inergy L.P. Some of the newsletter’s other favorites include Nutracea, American Medical Alert Corp., Freeport-McMoRan, Copper & Gold Inc., XRite, and MVC Capital Inc.
What about the stocks exhibiting negative insider trends?
“We’re focusing on the positive,” Mr. Moreland replied. “Going negative these days just doesn’t pay off.”
