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Welcome to edition 178 of Insider Weekends. Insider buying decreased with insiders purchasing $190.82 million of their stock last week compared to $266.66 million in the week prior. Selling also declined with insiders selling $3.56 billion of stock last week compared to $4.55 billion in the week prior.
We decided to highlight six insider purchases this week instead of the usual five because three out of the top 6 purchases were by insiders of mortgage REITs or companies that invest in mortgages. Expectations of the fed scaling back on its $85 billion per month quantitative easing program has roiled stocks of mortgage REITs and other interest rate sensitive instruments, leading them to heavily underperform the market. For example, Annaly Capital (NLY) is down over 25% this year while AG Mortgage (MITT) is down nearly 32%. With the S&P 500 up 28.46% this year, the relative underperformance of these mortgage REITs is well over 50%.
Sell/Buy Ratio: The insider Sell/Buy ratio is calculated by dividing the total insider sales in a given week by total insider purchases that week. The adjusted ratio for last week went up to 18.67. In other words, insiders sold almost 19 times as much stock as they purchased. The Sell/Buy ratio this week compares unfavorably with the prior week, when the ratio stood at 17.04. We are calculating an adjusted ratio by removing transactions by funds and companies and trying as best as possible only to retain information about insiders and 10% owners who are not funds or companies.
Note: As mentioned in the first post in this series, certain industries have their preferred metrics such as same store sales for retailers, funds from operations (FFO) for REITs and revenue per available room (RevPAR) for hotels that provide a better basis for comparison than simple valuation metrics. However metrics like Price/Earnings, Price/Sales and Enterprise Value/EBITDA included below should provide a good starting point for analyzing the majority of stocks.
Notable Insider Buys:
Beyond the top 6 insider purchases mentioned below, other insiders purchases that were notable this week include a cluster purchase by multiple insiders of textbook rental company Chegg (CHGG) that went public last week at $12.50 per share and promptly dropped 27%. Two insiders of office REIT American Realty Capital Properties (ARCP) including the CEO and the President decided to buy shares on the open market. While it is not a mortgage REIT, ARCP yields 7.2%, which is more than twice the 3.38% average yield of office REITs in October according to NAREIT.