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Leigh Baldwin & Co.

112 Albany Street, Cazenovia, NY 13035 | Phone: (315) 655-2964 Toll Free: 1-800-659-8044

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Stock of the Week

Insider Buying

August 29th 2011 Insider Buying

The recent correction has pushed many stocks from near 52 week highs to 52 week lows in a matter of weeks. In a months' time, economists have ratcheted down their GDP growth projections from 2-2.5% growth to basically zero or 1%. Thanks for nothing. A better barometer for the markets and the economy may be coming from corporate insiders. The recent correction has caused a flood of insider buying. In fact, the insider transaction ratio is at its lowest and most bullish level in nearly a year. Insiders have spent $681 million of their own money in the first three weeks of August. The value of those purchased were 15% higher than the insider buying back in March 2009, the month the markets bottomed following the financial crisis. Hedge funds that own 10% or more of a stock have spent a billion dollars in the first three weeks of August on equities. Meanwhile, the average investor, typically a contrarian indicator, has fled the markets with outflows from mutual funds at levels not seen since the fall of 2008 when Lehman Brothers went under. The list of companies with recent insider buying include Fortune Brands (FO), Exco Resources (XCO), Carter's (CRI), Leap Wireless (LEAP), Legg Mason (LM), Cintas (CTAS), NASDAQ (NDAQ), Equity One (EQY), Halozyme Therapeutics (HALO), Amphenol (APH), Chesapeake Energy (CHK), Huntsman (HUN), Energy Transfer Equity (ETE), Ares Capital (ARCC), Federal-Mogul (FDML), Walter Energy (WLT), MEMC Electronic Materials (WFR), Quidel (QDEL), Kinder Morgan (KMR), Greenbrier (GBX), Chiquita Brands (CQB), SM Energy (SM), WMS Industries (WMS), General Motors (GM), Exxon Mobil (XOM), Berkshire Hathaway (BRK.A), Royal Caribbean (RCL), Starbucks (SBUX), Skilled Healthcare (SKH), Corning (GLW), E*TRADE Financial (ETFC), Helix Energy (HLX), CNA Financial (CAN), CLECO (CNL), and Annaly Capital Management (NLY) all buying at least $857,000 or more. That's a real good sign long term. Hopefully this insider buying will translate into better than expected third quarter earnings.

Besides the insider buying, we also have corporation buybacks still going strong. In the Russell 2000, companies have spent $18 billion in the last year even before the recent sell off. The financials have led the charge with share buybacks. Numerous financials have made recent 52 week lows including JP Morgan and Wells Fargo. The yields are 2.8% and 2% respectively while JP Morgan still trades well before book value. Bank of America not only trades below its' book value of $20 a share, but also below tangible book value of $11 a share. Yet the stock pushed lower, falling to $6 a share. No significant insider buying, but a $5 billion infusion from Warren Buffett caused the stock to spike 30%. The insurance stocks have also been walloped due to one devastating storm after another this year. Hurricane Irene while damaging has proved less destructive than many feared. Travelers trades at a 3.4% yield and well below book value. MetLife, Hartford, and Prudential all trade well below their book value and yield 2.3% or better.

The steep sell off in August has everyone questioning the health of the economy. The Federal Reserve has done about all they can, urging Congress and the President for fiscal policies aimed at housing or the jobs market to get things moving in the right direction once again. The President is expected to announce some new initiatives in September to do just that. He better do something or else he's out of a job. Hopefully, the insider buying is a good indicator that while the economy continues to sputter, corporate profits should remain strong.