|
DJ
BARRON'S ONLINE: The Inside Story: Buy
By Dimitra DeFotis
Weekday Trader
(This item was originally published late Tuesday).
27 mar 2003
While investors have been frazzled by the prospects of war in Iraq and
economic security at home, corporate executives and directors--the people
who
presumably know their businesses best--have been sending another message:
No
problem.
Since last July, in every month except November, indicators of insider
buying
and selling have been positive, as measured by the dollar value of transactions,
says Lon Gerber, director of insider research at Thomson Financial.
That's partly because insider sales slowed as the market sank lower,
indicating executives think the worst of the bear market is over, he
says.
So far in March, 495 insiders have bought stocks from the major indexes,
while
488 have sold, according to George Muzea, president of Muzea Insider
Consulting
Services, in Reno, Nev. (Since many more insiders typically sell than
buy,
experts view an even balance like that as bullish.)
Last week, insiders sold into the war "relief" rally, but
the more important
cumulative ratio of sales to purchases over the last eight weeks remains
virtually unchanged.
"The important thing is the longer-term trend; otherwise, you tend
to get
whipsawed by weekly changes," says David Coleman, editor of the
Vickers Weekly
Insider.
Because top executives often get options or restricted stock as part
of their
compensation, insiders make on average 2.25 sales to every purchase.
Over the past eight weeks, however, there have been only 1.63 sales
for each
purchase, Coleman says. Last week, as the market rallied, sales inched
up to
1.73 per purchase, from 1.29 in the previous week. But they were still
below
average.
Trend watchers like Muzea, who recently published a book on insider
trends
called The Vital Few Vs. The Trivial Many, monitor how often and at
what price
insiders make purchases.
Insiders tend to be three to six months ahead of the market, Gerber
says.
Historically, they're most bullish at major market bottoms. For instance,
they
bought for 11 months before the secular low in October 1974, Muzea says.
And when insiders buy with their own money, it's a particularly strong
vote of
confidence. That's what Muzea sees at Kellogg.
Kellogg director John Dillon bought 1,000 shares at 26.13 in January
2001, but
when he bought another 1,000 shares on March 6, he paid 28.34 a share.
In addition, chief financial officer John Bryant made his first purchase
of
2,365 shares on March 17 at 29.64. Both insiders made open-market purchases
with their own money.
"These are the first buys [at Kellogg] since the middle of 2001-a
director
paying up and a CFO buying for the first time," Muzea says.
Historically, according to Thomson Baseline, Kellogg has traded at 21x
forward
earnings, but is now selling near 16x projected earnings (see At a Glance).
Another company where Muzea sees favorable insider-buying trends is
Nicor,
primarily a natural gas utility (which also pays a healthy dividend).
Earlier
this month, insiders including directors, vice presidents, the president
and the
chairman bought stock at prices between 25.25 and 25.88, below the current
price.
"This is the first time we have seen an [insider buying] mixture
in this
company in three years, which is a sign of fundamental value,"
Muzea says.
Nicor usually trades at 12.7x forward earnings; it is now changing hands
at
only 10.8x projected earnings, according to Baseline.
Coleman of Vickers likes to see insider buying at several companies
within an
industry, which is why purchases at some smaller airlines have caught
his eye.
At Express Jet, whose market capitalization is $509 million, three directors
bought 5,000 shares each on February 18. And at Mesa Air, whose market
cap is
$127 million, 11 insiders, including the chairman, bought shares between
March 6
and March 18.
In the past year, each stock fell more than Baseline's index of airlines,
which is down 42%.
"It is interesting-you have Mesa Air and Express Jet-and the airline
industry
obviously has been decimated of late," Coleman says. "This
is a good insider buy
signal."
Last week, the war rally generated three times as many insider sales
as
purchases, as some profit-taking may have set in. But even bearish Jonathan
Moreland, director of research at InsiderInsights.com, says if insiders
thought
things were "going down the tank," selling would have picked
up.
Insiders could decide to sit on their hands if war in Iraq drags on,
other
global hotspots flare or oil prices rise, depressing consumer spending.
That
might suggest more down side for stocks.
"The insider activity since the start of the war has reinforced
my view that a
secular low has not been reached," Muzea says. But, he adds: "That
doesn't mean
you cannot buy selectively.' '
So, as the baseball season looms, insiders may be throwing a few inside
pitches to investors that they could hit out of the ballpark if they
get their
timing right.
(END)
26-03-03 1300GMT(AP-DJ-03-26-03 1300GMT)
|