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Welcome to edition 325 of Insider Weekends. Insider buying increased last week with insiders buying $78.67 million of stock compared to $68.39 million in the week prior. Selling also increased with insiders selling $1.42 billion of stock last week compared to $1.31 billion in the week prior.
After 7 continuous weeks of very low volatility where the S&P 500 moved less than 1% a week, volatility returned with a vengeance last week with the S&P 500 dropping 2.39% for the week. Most of those losses came from a big 2.45% move down on Friday and volatility as tracked by the VIX jumped nearly 40% in a single day. Nuclear tests in North Korea, the possibility of the Federal Reserve raising rates before their December meeting and the upcoming presidential election all weighed heavily on investors minds. And then there is the fact that the S&P 500 is in the 8th year of a bull market even as earnings have been declining and now manufacturing activity is also declining.
As we near the end of the third quarter, insider activity is likely to be muted in the coming days and hence unlikely to provide us with much of a signal. It would be interesting to see how insiders react to further market declines after the third quarter earnings season starts. Insider activity last week was not very inspiring as some of the largest purchases (SGEN and AAP as discussed below) were by directors of companies who were buying for their funds. Amongst the insider purchases that were interesting but did not make the top 5 list were a purchase by the CFO of United Continental Holdings (UAL), a purchase by another insider of Norwegian Cruise Line Holdings (NCLH) and purchases by two insiders of troubled retailer Abercrombie & Fitch (ANF).
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 decreased to 18.1. In other words, insiders sold more than 18 times as much stock as they purchased. The Sell/Buy ratio this week compares favorably with the prior week, when the ratio stood at 19.22. 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.