Executives Invest Less in Their Own Companies

U.S. executives and directors have made $1.68 billion worth of open-market purchases of their own companies’ shares this year, 54% less than in 2000, as corporate insiders have turned wary of adding to their share holdings.

The drop in insiders’ open-market stock purchases was the steepest in 15 years, according to Washington Service, which tracks corporate insiders’ filings with the Securities and Exchange Commission. The data are through Friday.

The dollar value of shares bought by officers, directors and big investors in the market was the smallest since 1995.

Open-market stock purchases by executives don’t include shares they buy through the exercise of stock options. Option purchases usually are made at below-market prices. Analysts pay more attention to open-market purchases by insiders because they are considered a better indicator of how insiders view the appreciation potential of their companies’ shares.

The pace of insider buying picked up after share prices plunged in the 10 days following the Sept. 11 terrorist attacks, suggesting that insiders believe their stocks had gotten too cheap. But as the market has rebounded since Sept. 21, insiders’ open-market purchases have slowed again--which may indicate that a recovery in depressed corporate profits will be further off and less robust than some analysts expect, some investors say.

“Insider buying tends to accelerate when the economic outlook and earnings outlook is positive,” said Phil Larkins, market strategist for Legacy South Inc., which manages $400 million in assets. “We are in a slowdown. Clearly there will be a turn in profits next year, but it’s hard to pinpoint when that will be.”

Insiders “don’t have confidence in their businesses’ prospects,” said Louis Navellier, president of Navellier & Associates, which manages about $5 billion in assets. “They see the sales and orders, and all the problems.”

As insider buying has declined, so too has their selling, as share prices in general have fallen this year. Total sales of shares by insiders this year are down 48% from 2000 to $38.8 billion, Washington Service reported.

The stock sale totals include sales of shares bought on the open market and shares acquired through options. That is why the total is so much larger than the open-market purchases figure.

The biggest single open-market buyer among insiders in 2001 was former race car driver Roger Penske, who paid $96 million for stock in United Auto Group Inc., according to Washington Service. Penske is chief executive of the car dealership chain. UAG spokesman Phil Hartz said the details were disclosed in public filings and declined to comment.

UAG stock (ticker symbol: UAG) has surged 262% this year, to $24.20 on the New York Stock Exchange as of Monday.

Other large insider buyers included American Financial Group Inc. (AFG) Chairman Carl Lindner, who bought $14 million of the insurer’s stock, and Plains Resources Inc. (PLX) Chairman and Chief Executive James Flores, who bought $25 million of the energy company’s stock.

American Financial shares have fallen 10% this year to $23.86 on the NYSE; Plains shares are up 15% to $24.25, also on the NYSE.