Every week, I check to see what corporate investors are doing with the shares of the companies they own.
I do not get too excited over small-to-mid-size insider sales. Crowing over a single insider sale is something so-called analysts and experts do far too often. But there are hundreds of reasons a corporate officer or director may sell some shares of stock.
But there’s only one reason insiders buy shares. And that’s exactly what happened, big-time, in this little gem of a stock…
Insiders sell because they may be getting older and want to diversify their overall portfolio. For instance, if they were listening to me right now, they would be taking some profits off the table in many companies and putting the money into select bonds, heavily discounted closed-end funds, and preferred stocks.
Or perhaps they are a bit younger than others but realize an extraordinary opportunity developing in banks and real estate investment trusts. To take advantage of the opportunity, they sell off a few thousand shares of the ice cream, brake pads, and roofing shingle conglomerate where they are the head of sales.
Or it could be the CEO selling stock to buy a long-coveted vacation home vacation home, or the CFO paying for a dream wedding for a favorite daughter. Or the lead outside director may be going through a nasty divorce and must sell stock to pay off the soon-to-be ex.
For the most part, I ignore moderate insider selling most of the time, as there is little-to-no informational value in the sale.
There may be more information in much larger sales, but you have to do some digging to find out the reason for the sale.
On the flip side, there is only one reason executives open the proverbial checkbook and buy stock in the open market: they think the stock is going higher—a lot higher.
They are not buying stock to collect a few percentage points. They already have stock incentives and option grants. They are doing this because they will make money if the stock goes up. They have a strong conviction that the stock is undervalued and will go much higher, and they want to own more than they have.
Again, they are not expecting the stock to climb by a few percentage points, but by several multiples of the buyer’s purchase price.
All insider purchases have informational value. And in most cases, the larger the buy, the better the information.
However, the most informative and bullish insider transaction is an open market purchase near new 52-week highs.
Most of the time, insiders buy closer to 52-week lows to take advantage of attractive valuations. When an insider buys as a stock gains ground, that means they have information.
I have no way of knowing what that information is, and it would be illegal for them to tell us.
When the CEO of a company who already owns 434,000 shares of stock in the business he oversees spends another $131,000 close to new highs, he feels really good about the future. And that’s exactly what we’ve seen from Christopher Blunt, the CEO of F&G Annuities and Life Inc. (FG), who recently opened his wallet and bought 5,000 more shares of the stock as it climbed towards new highs.
F&G is not a super sexy company; as the name suggests, it sells annuities and life insurance. It is based in Des Moines, Iowa, and has been in existence since 1959. Business has been good. Concerns about the stock market, along with higher interest rates, have increased interest in F&G’s products.
The company recently reported record growth and record assets under management, and Moody’s recently upgraded F&G to A3 based on its improved financial condition and strong prospects. The stock yields 2.8%, and the company has also been buying back stock in the open market.
I do not know if Mr. Blunt is excited about some new product coming, or that interest rates on guaranteed annuities are as high as they have been in a long time. But whatever the cause for it, he is excited enough to have more of a stock that is already up more than 40% in 2023.
Annuity rates are now competitive with bank CDs and savings accounts, giving investors and savers concerned about risk assets another choice. It is not a choice I would make, but millions of people in the United States own annuities.
Insider stock purchases close to the lows are bullish.
Near the highs, insider buying is super-bullish.