Weekday Trader
Good thing that amzn insiders are jumping in with 2 feet to bargain hunt along with W. Harmond and M Fowler. OH, what's that you say? AMZN insiders continue slow exit with insider selling. Hmmmm.
Key excerpt:
And Cappy believes that insider buying in the broader market probably
mirrors the experience at Dollar Thrifty. Executives who are comfortable
that an industry's fundamentals are solid, that a company will meet its
profit projections and that the stock price will eventually reflect that
"are going to jump in and buy," he says.
That was "buy" not "sell."
LP
Amid the Gloom, Insiders Are Buying Again
By Vito J. Racanelli
With the world's economic news recently turning so grim, Wall Street
appears to be readying itself for the periodic Running of the Bears.
U.S. stocks have corrected on worries about global economic turmoil and
slowing domestic profit growth. As of August 14th, the S&P 500 Index was
off more than 10% from the all-time highs it set in mid-July, and as has
been widely reported the broader market has done much worse. Many smaller
stocks have suffered more than 20% declines, which many consider the
threshold for a bear market.
But a funny thing is happening on the way to this bear market: Corporate
insiders are suddenly snapping up shares in their companies. That's a
180-degree turn from the heavy selling seen among these folks between last
February and April. (See Weekday Trader, "Insider Selling Flashes a Yellow
Light for Stocks," April 2nd.)
Those who watch insider trading full time say this change of heart by the
people who know their businesses best may be a strong signal that the
market is nearing a bottom. Furthermore, the buying seems to have
intensified in the last month, even as the broad market was in full swoon,
they say.
George Muzea, who heads up the Reno, Nev.-based Muzea Insider Consulting
Services, says, "almost all of our analysis of [recent] aggregate insider
data is positive. In the past, unanimity such as this has often occurred at
significant stock market turning points."
Richard Cuneo, editor of Vickers Weekly Insider Report, adds that his
research shows the trailing, eight-week average insider sell/buy ratio was
a "very bullish" 1.09:1 as of last week. Normally, the ratio is 2:1, and
at the beginning of May it was a bearish 3.19:1, according to Vickers. The
implication, says Cuneo: Insiders believe that the things that are rocking
the market -- Russia's woes, fears of a Chinese devaluation, President
Clinton's problems -- have nothing to do with the U.S. economy.
Furthermore, there have been "dramatic" turnarounds in sentiment among
some market sectors, adds Bob Gabele, whose CDA/Investnet research firm
tracks insider activity. Technology, chemicals, paper and forest products,
aerospace/defense and energy stocks all have shown big shifts to net
insider buying from selling in a very short time, he points out. That
shouldn't be a surprise, because those groups have been among the
worst-performing sectors in the stock market this year.
At the other end of the spectrum, corporate officials at retail,
broadcasting and television, advertising and newspaper/publishing companies
are still selling shares, according to CDA.
Gabele notes that insider purchases are "concentrated in the small to
mid-caps." Again, no surprise, since many small-cap stocks are already
down 20% or more, the definition of a bear market. Gabele is more cautious
about the activity in large-capitalization stocks, where, he says, insiders
are generally abstaining from selling shares rather than buying stock in
the open market.
While Gabele asserts that it may yet be "a touch" early to conclude the
market has hit bottom, "I'm inferring that there is plenty of value here."
One Wall Street market strategist who couldn't agree more is Alan Skrainka,
who toils at St. Louis-based Edward Jones. The Asian economic problems are
all very real and having a much bigger impact on U.S. corporate earnings
than investors originally imagined, Skrainka says.
Yet, he points out, large profit shortfalls at certain
companies--particularly those directly exposed to Asia -- have lowered
average earnings gains significantly. (And in a market of winners and
losers, focusing on an average earnings increase is "simplistic" anyway, he
says.) The long-term factors that drove the market higher remain in place,
he maintains -- low inflation, interest rates and unemployment and strong
consumer confidence. Simply put, insiders are buying "because they like the
fundamentals of the U.S. economy," Skrainka concludes.
For instance, some of the heaviest inside buying has been seen at Dollar
Thrifty Automotive Group (DTG), a car rental firm whose shares have dropped
some 50% from their 52-week highs amid worries about slower growth in
prices industrywide. But in recent months, some ten different company
officials have stepped up to the plate and bought a total of almost 19,000
Dollar Thrifty shares between them in the open market.
Among them was chairman and CEO Joseph E. Cappy. As might be expected,
Cappy says he sees value in the shares because the market has overreacted
to slower growth in rental rates. He believes that investors are
overlooking significant moves toward lower industry costs, as well as
improved rental pricing this quarter: He expects prices to rise by 3% to
3.5% over the same quarter a year ago. That's roughly half last year's rise
but double that of the second quarter. And he is "very, very comfortable"
with Wall Street's consensus earnings estimates of $1.41 per share this
year at Dollar Thrifty, up from 90 cents in 1997. The stock closed Monday
at $11 5/16.
And Cappy believes that insider buying in the broader market probably
mirrors the experience at Dollar Thrifty. Executives who are comfortable
that an industry's fundamentals are solid, that a company will meet its
profit projections and that the stock price will eventually reflect that
"are going to jump in and buy," he says.
Of course, insiders are known to be bargain hunters, and often they aren't
the greatest market timers in the world. For example, George Muzea notes
wistfully, insiders were buying heavily going into the 1973-1974 bear market.
Nevertheless, Corporate America appears to be bucking the market's recent
retreat and is showing a lot of faith in the stocks of the companies these
executives run. |
