Purchases of Company Stock by U.S. Executives Rise 8.8%
U.S. executives and directors made open-market purchases of $924 million of shares in their companies in the first quarter, an 8.8% increase from a year earlier, as the outlook for earnings improved.
AOL Time Warner Inc. Chairman Stephen Case, Tyco International Ltd. Chairman Dennis Kozlowski and officers of other companies whose stocks have plunged led the buying, according to the Washington Service, which tracks insider buying and selling via filings made with the Securities and Exchange Commission.
Investors like to see executives buy shares in the open market, as opposed to acquiring stock via options, because it suggests strong conviction about future performance.
“Increased buying is definitely a good sign,” said Phil Larkins, market strategist for Legacy South Inc., which manages about $400 million in assets. “Insider buying tends to accelerate when the economic outlook and earnings outlook is positive.”
Corporate profits are expected to rebound this year after diving in last year’s recession.
The biggest executive buyer in the quarter was Omega Healthcare Investors Inc. director Donald McNamara, who paid $31.8 million for 10.9 million shares of the real estate investment trust. McNamara didn’t immediately return a call seeking comment. Company spokesman Bob Stephenson declined to comment. Omega shares have fallen 13% this year and have lost more than 60% of their value in the last two years.
At AOL, the largest Internet and media company, Case bought 1million shares for $24.1 million, which “underscores the confidence I have in the company and its growth prospects,” he said. AOL’s shares have fallen 26% this year after advertising sales fell more than expected and revenue increases slowed for its online service.
Tyco’s Kozlowski paid $14.7 million for 500,000 shares of the No. 1 maker of electronic connectors because “the company is substantially undervalued by the marketplace,” he said. Tyco has dropped 45% this year amid concerns about its accounting methods and possible conflicts of interest on its board.
Personal sales of stock by insiders also declined in the first quarter. Total sales fell 37% from a year earlier to $8.86 billion, according to Washington Service.
Analysts say the fewer sales in part reflect the end of the bubble in shares of Internet, computer and telecommunications equipment companies. But the decline also could indicate that many executives believe their stocks are undervalued at current prices.
The dollar value of insider stock sales always far exceeds the value of open-market purchases because the sales data include stocks acquired through options.
Microsoft Corp. officials led insider sales in the first quarter, as they have for the last six years. Shares of the largest software company rose 53% last year, making the stock the top performer in the Dow Jones industrial average.
Founder Bill Gates reported sales of $556.7 million in the quarter, topping all sellers, according to Washington Service. Gates has a regular program in which he periodically sells a small fraction of his Microsoft holdings to diversify his investments, said Caroline Boren, a company spokeswoman.
Tenet Healthcare Corp. Chairman Jeffrey Barbakow sold 2 million shares of the second-biggest U.S. hospital chain for $130 million. The executive exercised options and sold shares “for personal estate planning reasons and to assure that his exercise was done in a careful, orderly fashion before the 10-year option grant expired in June 2003,” the Santa Barbara-based company said in a statement.
