Follow the smart money...After reducing buybacks to conserve
cash, American corporations are repurchasing shares again at a breakneck pace.
Corporate officers, on the other hand, are a bit less enthusiasm for their
employer’s shares. In the first two weeks of 2021, a total of 1,000 insiders
sold a bevy load of their own stock and 128 bought shares, leaving the
sell-to-buy ratio poised for the highest monthly reading in data going back to
1988, according to Washington Service. Meanwhile, the same corporations
announced $33 billion of buybacks over the stretch, up 49% from a year earlier,
according to data compiled by Birinyi Associates. CEO’s and CFO’s and company
insiders are NOT stupid, as share buying by corporate officers has declined
significantly after a FED liquidity intervention and massive fiscal stimulus
flood, and a near parabolic 10-month rally drove valuations of their firm’s
stock to levels not seen since the dot-com bubble. Insiders and corporate
leaders fully know that their firms are more than fairly valued, and they are
not going to rush to put more of their own money into their firms shares at
these nosebleed prices JMHO.
This is NOT first time that CEO’s/CFO’s and insiders have
diverged like this.
Ø In 2014,
insider buying dried up while corporate America spent a near-record amount of
money on buybacks. That year, the SPX-500 advanced 11%. Since the end of
December, the SPX-500 Buyback Index has risen almost 6%, compared with a gain
of 1.1% for the broader index.
Ø Financial
fuzzy-math engineering through corporate buybacks are returning back in a
significant manner once again as firms are sitting on cash, are likely to break
several quarters of profit declines this year; via financial “smoke-screen”
o
Corporate insiders, on the other hand, are
retreating after their buying correctly signaled the bottom in March.
The sell-buy ratio tracked by Washington Service exceeded 4-to-1 in November
for the first time in almost 2-years and has since risen to even higher levels.
Company executives sold over $347 million worth of shares
this year through Friday, that is 19 times the total they purchased. How are investors
objectives aligned with management and if management is selling why are
investors buying? Ideally you would like
to see that insiders and management feel that what they own will continue
to grow in value, as opposed to the SELL message. Clearly, the message from
the C-Suite, much like that of so many officials across the nation during Covid-19
lockdowns, (like I used to tell my kids...“do as
I say, not as I do.” In this case just keep buying my stock
while I sell my discounted shares to the next herd of bag-holders as I find my
shares to be over-valued!
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