Insider Buying

May 26, 2022

johnh

The summer season unofficially begins with the extended weekend. Markets are closed on Monday in observance of Memorial Day. We typically see reduced trading volumes before a holiday, and we could see the markets float higher on lighter volume today. Adjust your positions as needed.

The Consumer Sentiment report comes out at 10 am and it tells us how families are feeling about their financial situation. The general consensus is that we’ll fall within the predicted range, although the prediction is at the lower end of the range. Housing prices are still going up and the job market is still strong, despite the higher prices people are paying and the market meltdown.

Maybe by now, you know that I enjoy a good scan or two… or three… or more. I went back and looked at the selling that has been happening over the last couple of months and what I found interesting is that insider buying transactions also slowed down. Insider trading transactions are those coming from corporate insiders who report buying (or selling) shares of their company’s stock.

After all, if the corporate executives aren’t buying their own stock, it might be saying it’s not time for you to get buy either.

Over the last six years, the average ratio of companies with insiders buying to selling is .47. In December 2018 when the market fell, the ratio hit .29 near the bottom, and after hitting 1.0, the market rallied by over 12%.

We’re now nearing a ratio over 1, which indicates that insiders have been buying again.

We have to put recent price action into perspective since we’ve seen a couple of up days followed by strong selling days. I’m not throwing everything into bullish moves here, but there are some signs that you can start picking up quality businesses if they are reasonably priced and you’re willing to hold on for a couple of years. Or at least look at those companies to sell puts if you’re an option seller.

I decided to run a scan just to see what companies have seen an increase in insider buying lately and here’s what I scanned for:

Performance: must be negative for the year
Beta: under 1
P/E: < 15
Insider Transactions: > 20%
Average Volume: over 100K shares traded daily

The list wasn’t extensive and I wasn’t wowed by the price of the stocks that came up, but you can certainly play around with the parameters of the scan. For example, removing the low Beta and low P/E requirement opens the list up to over 160 stocks.

That list includes bigger names, like Home Depot (HD), Coinbase (COIN), and Morgan Stanley (MS). Do the executives of these companies know a bargain when they see one?

And if we can break the through last swing high on the daily chart (dashed blue horizontal line), we might see a reversal happening in the bonds.

Have a safe weekend!

If you have any questions, comments, or anything we can help with, reach us at any time.

Jeff

Guest Writer, Filthy Rich, Dirt Poor
Editor, Wealthy Investor Society

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