from Bloomberg:
Top Financial News
08/24 10:54
Insider Buying Jumps, Signals Gains Ahead: U.S.
Stocks Outlook
By Josh P. Hamilton
New York, Aug. 24 (Bloomberg) -- Executives at companies including J.P.
Morgan Chase & Co. and Walt Disney Co. are betting on their shares at the
highest rate since November, fueling investor optimism that benchmark indexes
will extend a five-week rally.
Insiders bought their firms' stock as often as they sold in the week ended Aug.
16, according to David Coleman, whose Vickers Weekly Insider Report tracks
insider trades. Two months ago, sales outnumbered purchases 4-to-1.
``I'm encouraged,'' said Fred Plautz, a money manager at Appleton,
Wisconsin-based Thrivent Financial for Lutherans, which oversees $15 billion in
stocks. ``The more confident management is in the earnings of their companies,
the more we'll see steady, consistent buying.''
Plautz said insider purchases at Disney and Harley-Davidson Inc. gave him
confidence in holding those stocks.
The ratio of insider sales to purchases was 1.56-to-1 for New York Stock
Exchange- and American Stock Exchange-listed companies during the eight
weeks through Aug. 16, Coleman said. It was 1.01- to-1 for the last week of that
period, he said.
Because most insiders acquire their stock in grants or by exercising options
rather than through outright purchases, selling usually outweighs buying.
Coleman considers a ratio of less than two sales for every purchase a bullish
indicator.
Insiders sold 4.1 times for every purchase in the eight weeks ended June 14 --
the widest margin in 16 years and a sign executives at the time thought their
money was better placed in other investments, Coleman said.
S&P 500, Dow Rally
The Standard & Poor's 500 Index subsequently tumbled to a five-year low on July
23, and the Dow Jones Industrial Average slid to its lowest in four years. Since
then the S&P 500 has rallied 18 percent and the Dow 15 percent, as executives
began buying again.
Michael Eisner, Disney's chief executive, bought $10 million worth of the media
company's stock last week and J.P. Morgan executives purchased $239,500
more of the second-biggest U.S. bank's shares than they sold, according to
research firm Washington Service.
Executives' purchases of Charter Communications Inc., the fourth-largest U.S.
cable company, outstripped sales by $20 million in the past two months, the
biggest net insider purchase among U.S. companies with a market value of at
least $500 million.
``I'm predicting a 30 percent increase in the Dow within 12 months based on the
fact we've been tracking this data since 1971 and it reached these bullish levels
only a handful of times,'' Coleman said in an interview. ``Each time, the gain has
been about 30 percent.''
Insiders must report purchases and sales of their companies' shares to the
Securities and Exchange Commission, generally by the 10th of the month
following a trade. Coleman compiles his data from those filings.
Starting next month, investors will get more timely information on insider buying
and selling. New regulations will require companies to file with the SEC within
two days of a trade.
Weekly Recap
The S&P 500 climbed 1.3 percent this week to 940.86. It was the first time the
benchmark rose five consecutive weeks since Aug. 4 through Sept. 1, 2000. The
S&P hasn't had a longer streak since the eight-week period that ended March
20, 1998.
The Dow gained 1.1 percent this week, rising above 9000 for the first time since
July 9 before dropping Friday to close at 8872.96. The Nasdaq advanced 1.4
percent to 1380.62.
Stocks were helped by comments from Anthony Santomero, president of the
Philadelphia Federal Reserve Bank, Michael Moskow, president of the Chicago
Fed, and Robert Parry, head of the San Francisco Fed, who said interest rates
are low enough to keep consumers spending and propel the economic rebound.
Second-quarter profit for the S&P 500 rose 0.9 percent from a year earlier, ending
a string of five quarters of falling earnings, according to Thomson First Call.
Home Depot, Lowe's Gain
Home Depot Inc. and Lowe's Cos., the two largest home- improvement retailers,
reported rising profit. Home Depot surged 19 percent for the week while Lowe's
jumped 16 percent.
Qwest Communications International Inc. rose 39 percent for the week after the
local-telephone company agreed to sell its phone-book unit for $7 billion, raising
cash to avoid bankruptcy. The shares still are down 87 percent over the past
year.
RadioShack Corp. was the biggest loser in the S&P 500, falling 18 percent for
the week after the third-biggest U.S. electronics retailer said sales and profit will
be less than forecast this quarter as shoppers avoid higher-priced items.
Economic data scheduled for next week include reports on sales of new and
existing homes on Monday; August consumer confidence and durable-goods
orders Tuesday; and the government's revision to second-quarter gross domestic
product estimates on Thursday.
Companies due to report quarterly earnings include Hewlett- Packard Co. on
Tuesday and Dillard's Inc. on Thursday.
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