Executives Capitalize on Market Slump
As the market swoons, many corporate insiders have been swooning over their own companies’ shares.
Executives have been heavy net purchasers for the last two months, says George Shirk, managing editor of Insiders newsletter in Deerfield Beach, Fla. His reading for the week ending Aug. 27 was a bullish 59% buys versus 41% sales.
The outlook according to this indicator is murkier for technology--an industry whose chieftains are known for exercising stock options rather than buying on the open market.
But it’s too early to tell how tech insiders reacted to the rock ‘n’ roll trading of recent sessions. While there seems to have been little insider buying during the summer, selling has faded in the groups hit hardest by the Asian flu and the personal computer price war, such as chip and chip-equipment firms.
This matches the trend in the broader market, analysts say, where the weakest stock sectors have seen the most exuberant buying. The groups that top Shirk’s scale are oil and gas, including explorer Apache Corp. (ticker: APA); gold and precious metals, including Newmont Mining (NEM); and real estate investment trusts such as Roberts Realty (RPI).
One eye-opening insider play is ongoing at Oakley Inc. (OO), the Orange County sunglasses maker. Chairman James Jannard says he will add 5 million shares to his gargantuan stake.
“Insiders tend to be more long-term oriented, buying on their companies’ prospects six to 12 months in advance,” Shirk said. “They buy value, and rather than being adept market timers, they often buy and sell early.”
Stock sales are a fact of life among tech executives and may indicate nothing more than diversification or funding of a home purchase. Shareholders who followed the example of execs at Dell Computer (DELL) and Sun Microsystems (SUNW), for example, would have missed much of those stocks’ multiyear run-ups.
But unusual selling can telegraph trouble. Insiders at publishing software developer Adobe Systems (ADBE) have made 17 sales and no buys in the last year. Last September, according to Bob Gabele at Rockville, Md., research firm CDA/Investnet, 10 insiders sold 164,000 shares in the $50 range before the stock slid into the $30s. The pattern was repeated in April as the stock neared its former heights.
Current selling streaks at two industry titans, Intel (INTC) and Cisco Systems (CSCO), are making an impression. With 21 executives unloading over the last 12 months, the microprocessor maker leads Shirk’s list of Nasdaq sellers. Adds Gabele: “Selling at Intel has been rather heavy on each rally, and the sales have been coming at successively lower prices, which we feel is a negative.”
To Gabele, it’s even more striking that in August nine Cisco insiders notified the Securities and Exchange Commission that they plan to sell 1,163,000 shares. Cisco stock has run up about 75% year-to-date.
Since high prices draw out the sellers, it’s no surprise that software insiders are lightening up. Insulated from Asian woes and profiting from cheaper PCs, software stocks have outperformed their tech peers this year. Insiders at PeopleSoft (PSFT), BMC Software (BMCS), Veritas Software (VRTS), Compuware (CPMR) and Open Market (OMKT) have been parting with shares recently, Gabele says.
However, where the bear market came early--so-called commodity sectors like chips and disk drives--selling seems to have run its course. And that’s bullish, analysts say.
“Computer hardware and semiconductors have been traditionally at the bottom of our screen, showing the most insider distribution,” Gabele said. “In the last two months they’ve been near the top.” He says chip makers LSI Logic (LSI) and Cypress Semiconductor (CY) and equipment maker KLA Tencor (KLAC) exemplify the trend. At current prices, the bosses at these cyclical companies may see their assets as undervalued.
But where are the buyers? Investors will know more after Thursday, when insiders are required to file their transactions for August with the SEC.
David Coleman, a Washington money manager who invests on insider data, points to Viasoft (VIAS). Executives at the Arizona software firm, which sells tools to address the year-2000 problem, bought 93,000 shares last month on top of 425,000 in April at prices ranging from $15 to $10. From a 52-week high around $58, the stock now changes hands at $7.
“We are seen as a Y2K company and nothing else--and the Y2K business will drop off,” said Chief Financial Officer Mark Schonau, one of the buyers. “But we are more than that. We have new technologies for the euro conversion and modernizing mainframe systems. At these prices, the stock appears to me to be a good investment.”
TICKER TALK
Americans spend twice as much time on average evaluating major purchases, such as a car or computer, than they do researching their financial investments, according to a survey released Thursday by Boston-based Fidelity Investments. . . . Fidelity, the largest U.S. mutual fund company, said James Curvey, chief operating officer of parent FMR Corp., has been named president, a post that had been vacant since 1986.
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Weight of the World
The Standard & Poor’s investment bank/brokerage index continued its decline Thursday as financial services firms issued new earnings warnings because of global economic tumult. Lehman Bros. Holdings, whose shares have tumbled 45% in the last month, said it expects third-quarter earnings to fall 23% because of losses from trading in Russia and other emerging markets. Lehman stock fell 8.9% on the day as the index’s biggest loser, while Bear Stearns dropped 8.1%, Merrill Lynch 5.8% and Schwab 1.6%. Monthly closes and latest for the index:
Thursday: 369.59
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Source: Bloomberg News
