C.J. Lawrence Weekly – Corporate Insiders Increasingly Like the Odds of their Own Stocks
Correlations between insider stock purchases and the company’s stock price are not always tight. Some insiders are better buyers than others. But in aggregate insider purchases can paint an important picture of insider confidence in their own company and stock and whether they are willing to eat their own cooking. “Insiders” are defined as directors or senior officers of publicly traded companies, as well as any person or entity that beneficially owns more than 10% of a company’s voting shares. One would expect that they have the best seat in the house and have a more informed perspective on their company’s business prospects than the investing public.
In the recently reported 2Q19, insider purchases surged on both a sequential and year-over-year basis. According to data provided by Fact Set, the total market value of insider share repurchases exceeded $2.2 billion in the quarter. That compares to $691 million in 1Q19 and $958 million in 2Q18. The biggest increases on a sector basis were seen in Energy, Utilities, and Industrials when measured on a 1H19 versus 1H18 basis. Materials and Financials saw the biggest decreases during the period. Health Care and Technology show the most consistent buying from quarter to quarter.
The positive trend in insider buying runs counter to the net selling of equity mutual funds and ETFs by retail investors, which continues at an unabated pace, and comes at a time when aggregate corporate share re-purchase programs are beginning to slow. The heavy 2Q19 insider purchase activity also belied a market sell-off in May and the beginning of what has now become a full-blown trade war between the U.S. and China. At the individual security level, insider purchase activity track records can be spotty. But the aggregate confidence should not be ignored. Insider optimism, amid broader pessimism, is a bullish signpost for broader equity markets.