<<Insiders Not Signaling Rise for Stocks
Sun Oct 20, 8:28 AM ET
By Thi Nguyen
NEW YORK (Reuters) - Stock market collapses have often inspired companies to jump in and buy their own bargain-priced shares in the open market. But the recent decline to five-year lows hasn't brought such a wave of support.
As stocks dropped, announcements of corporate buybacks, where companies purchase their own shares using internal funds, plunged last month to the lowest level in years.
What's more, top executives -- so-called insiders -- are reluctant to buy more shares in their own companies.
Together, the relative lack of interest by corporations and executives in their own company stock has some market pros concerned about the negative signal this telegraphs to investors.
While the market has rallied sharply in recent days, many analysts are skeptical about its staying power. Indeed, the Dow Jones industrial average was down more than 2 percent Wednesday afternoon at 8,070.
"Even as stocks have fallen to 5-year lows, there doesn't seem to be a great drive for corporations to step in," said Rich Petersen, chief market strategist at Thomson Financial. "Buybacks have come down to the lowest level since 1996, and we haven't seen any pick-up in October."
Some say companies are not buying back their shares because they are cash-strapped after their stocks have lost much value in the past two years and their profits have suffered from a sluggish economy.
Corporate insiders, already badly burned by the market's collapse, are now more skeptical of the prospect for a sustained rebound in their shares, even if they are cheap.
"It's possible that they've seen a bargain in their stock price," said Uri Landesmann, principal at Arlington Capital Investment. "But on the timing of when to purchase, cheap is not enough to convince their boards (of directors).
"In general, boards have been severely burned with lack of corporate governance and stock drops. So management will have to point out a catalyst for the stock to go up." |
