The world’s best investor, Warren Buffett, once said to be greedy when others are fearful. That’s exactly what corporate insiders are doing during the 2020 market panic.
The data (see here and here) shows that, while the market has tanked on concerns that the rapidly spreading novel coronavirus outbreak will bring the global economy to a screeching halt, corporate insiders are buying stock in their own companies at a record pace. There’s more insider buying happening today than there has been in a long, long time.
That’s significant. According to Nejat Seyhun, a University of Michigan finance professor who is an academic expert on this front, insider buying is one of the most relevant indicators of future stock price performance.
In researching insider buying trends from 1975 to 1994, Seyhun found that stocks with significant insider buying outperformed the market by 4.5%.
So, when insiders are buying, you should be paying attention — and insiders are buying today at a record pace.
Does that a mean bottom is in? Is the sell-off over?
Tough to say. But it is a strong signal that the corporate leaders across America do not think the coronavirus headwind will last forever. Instead, they are predicting a strong second-half recovery for the U.S. economy. If so, today’s beaten-up stocks could turn in tomorrow’s huge winners.
With that in mind, check out these stocks with big insider buying:
- Exxon Mobil (NYSE:XOM)
- IMAX (NYSE:IMAX)
- Live Nation (NYSE:LYV)
- New Residential (NYSE:NRZ)
- Lowe’s (NYSE:LOW)
- Planet Fitness (NYSE:PLNT)
- Wells Fargo (NYSE:WFC)
Stocks with Big Insider Buying: Exxon Mobil (XOM)
Amid the coronavirus panic and an all-out oil price war between Russia and OPEC, shares of Exxon Mobil have plunged 55% off their 2020 highs in record time. XOM stock now trades at its lowest level in about 20 years.
Insiders see this sell-off as an opportunity. In the trading week ended March 20, two executives bought $1 million each of Exxon Mobil stock. Senior Vice President and Principal Financial Officer Andrew Swiger bought 30,000 shares on Thursday (3/19) at average price of $33.80 — his first purchase of Exxon stock since 2006. The previous day, Neil Duffin, president of Exxon Mobil Global Projects Company, shelled out $1.1 million for 30,000 shares at an average price of $36.41.
Those are pretty significant purchases. Together, they indicate that big insider money thinks oil prices and oil stocks will rebound.
I agree. The coronavirus pandemic won’t last forever. Oil demand will pick back up in the second half of 2020. At the same time, Russia and OPEC can’t fight each other forever. A deal between those two countries will likely be struck within the next few months, leading to supply cuts. Lower supply plus higher demand equals rebounding oil prices and oil stocks, XOM included.
The coronavirus pandemic has forced movie theaters across the world to close their doors. With that entire industry shut down, shares of movie theater technology company IMAX have shed more than 60% in a matter of weeks to trade at their lowest levels since the 2008 Financial Crisis.
Of course the real concern here is bankruptcy. But insiders don’t perceive that to be much of a real concern. In the trading week ended March 20, IMAX’s Chief Executive Officer bought 25,000 shares on IMAX stock, joining Chief Legal Officer Robert Lister and President Mark Welton, who each bought 5,000 shares.
This broad buying indicates that insiders at the company believe IMAX will live to see another day.
I think so, too. It appears the government is keen on providing necessary aid to impacted industries during the coronavirus crisis so as to avoid a wave of bankruptcies and unemployment filings. That’s the right thing to do. So long as the government follows through on this, then IMAX will indeed make it through to the other side of the coronavirus crisis.
Live Nation (LYV)
With the world in quarantine, there are no events happening. And with no events happening, event booking platform Live Nation has no business. LYV stock has consequently cratered 60% over the past few weeks as America has gone into lockdown.
Insiders don’t think this pain will last forever. CEO Michael Rapino purchased 25,600 shares at $38.98 each on March 12, joining a handful of other executives and board members who have been making 1,000-plus share purchases of LYV stock over the past few weeks. Also of note, billionaire investor Mark Cuban — who has been gradually buying the dip in the market — said that his biggest buy during this panic is Live Nation stock.
Again, I agree with this bullishness from insiders and top investors, on the assumption that the government does provide necessary aid to impacted companies like Live Nation. If so, then LYV stock will only be this cheap for so long before rebounding in the second half of 2019 as pent-up consumer demand turns into huge event traffic and sales.
New Residential (NRZ)
As one of the leading providers of capital and services to the mortgage and financial services industries, New Residential found itself in a world of pain recently as the Fed cut rates to zero and the coronavirus pandemic brought the global economy to a halt. NRZ stock fell 60% in a matter of weeks.
Insiders emphatically bought the dip. In March, Chief Financial Officer Nicola Santoro bought 50,000 shares of NRZ stock at $5.84. Board members Alan Tyson, Robert McGinnis, and Pamela Lenehan all bought 10,000 shares around the same purchase price. Fellow board member Andrew Sloves, meanwhile, picked up 20,000 shares.
This broad insider buying implies that those who know the company best don’t think New Residential will go under during this time.
It won’t — so long as proper government aid is provided during the crisis. If it doesn’t, then NRZ stock — which trades at less than half its book value — will bounce back in a big way.
Social distancing measures and store closures across America have hit the physical retail industry hard. Home improvement retailer Lowe’s is no exception. In a matter of weeks, LOW stock has shed 45%, with shares now trading just a few bucks above five-year lows.
The company’s Chief Executive Officer, Marvin Ellison, thinks this sell-off is overdone. On March 6, he bought 10,000 shares of Lowe’s stock at a price tag above $100.
Sure, that’s before the coronavirus pandemic really broke out in the U.S. Still, it’s a vote of confidence from the company’s top executive that Lowe’s will be able to weather this storm and come out on the other side the same, strong company it was coming into this crisis.
I couldn’t agree more. With rates at all time lows and tons of monetary and fiscal stimulus in the pipeline, the housing market is due for a sharp rebound once coronavirus fears pass. As goes the housing market, so go home improvement retailers like Lowe’s. By the second half of 2020, this stock could be in the midst of a big rebound.
Planet Fitness (PLNT)
With gyms across America closed for the foreseeable future, discount gym operator Planet Fitness won’t see any revenue over the next few weeks (while the company charged members dues for March, they won’t be charging members going forward). They could also see a huge swarm of membership cancellations.
The sum of these headwinds pushed PLNT stock down by nearly 75% in just a few weeks.
As the stock was cratering in March, a ton of insiders were buying. In total, nearly 150,000 shares were purchased by insiders over the past three months (including 120,000 in March alone). Zero shares were sold by insiders.
Insiders’ bullishness makes sense. The company has $436 million in cash on the balance sheet, and some positive cash flow to work with from January and February (usually a busy time of year for gyms). That should provide sufficient liquidity to keep the lights on for the next few months until this crisis blows over.
Once it does blow over, Planet Fitness could see a surge in memberships from cooped up consumers who want to get back into the gym. If so, then PLNT stock could be looking a big second half rebound.
Wells Fargo (WFC)
Banks have had a rough run over the past few weeks. Not only did the coronavirus pandemic bring the economy and consumer and enterprise spending to a halt, but the Fed cut rates to zero and the yield curve has been further inverted. All together, it is nothing short of an awful operating environment for banks.
Bank stocks have consequently fallen off a cliff. Wells Fargo is no exception. WFC stock is down 60% over the past few weeks.
On the dip, the bank’s Chief Executive Officer and President, Charles Scharf, shelled out $5 million for 173,000 shares of Wells Fargo stock.
That’s a huge purchase. And it’s the exact type of purchase that can and should breathe confidence into shareholders. After all, this is the man who supposedly knows more about Wells Fargo’s operating business than anyone else in the world, and he committed $5 million to buying this dip.
I understand why he did that. Yes, things are ugly today for banks. But they will probably be a lot better by the back-half of the year. The pandemic will pass. Consumers and enterprises will re-up spending. Rates will rise. The yield curve will normalize.
Everything will get better. As it does, WFC stock should rebound.
Luke Lango is a Markets Analyst for InvestorPlace. He has been professionally analyzing stocks for several years, previously working at various hedge funds and currently running his own investment fund in San Diego. A Caltech graduate, Luke has consistently been recognized as one of the best stock pickers in the world by various other analysts and platforms, and has developed a reputation for leveraging his technology background to identify growth stocks that deliver outstanding returns. Luke is also the founder of Fantastic, a social discovery company backed by an LA-based internet venture firm. As of this writing, he did not hold a position in any of the aforementioned securities.