Welcome to edition 522 of Insider Weekends. The S&P 500 managed to gain almost 2% last week buoyed by the reopening of various states and even certain counties in California. The county I live in opened restaurants, bars and salons last week, essentially leapfrogging into an expanded stage 2 reopening as laid out in California’s reopening roadmap.
COVID-19 cases continue to increase in the US and last week accounted for the highest number of cases in the last six weeks. One could point to the fact that with more testing, there will be more cases identified and there is some credence to that line of thought as you can see from the number of deaths in the chart below. Anyone who can read a stock chart can see that it points to lower lows and the trend is down. However we are not out of this situation and the next month will be critical in determining if we have turned the corner or the reopenings are going to cause an increase in COVID-19 related deaths. In our Ten Year Anniversary edition of Insider Weekends last week I wrote that our economic future appears to be inextricably linked to an effective COVID-19 vaccine and I plan to position more defensively going forward. The volatile market rally last week has not changed my opinion and I continue to remain defensively positioned.
Insider buying doubled last week with insiders purchasing $123.37 million of stock compared to $61.84 million in the week prior. Selling, on the other hand decreased significantly with insiders selling $1.28 billion of stock last week compared to $2.44 billion in the week prior.
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 dropped to 10.39. In other words, insiders sold more than 10 times as much stock as they purchased. The Sell/Buy ratio this week compares favorably with the prior week, when the ratio stood at 39.54.
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.