With a Ground-Level View of Earnings, Insiders Seen Buying Discounted Stock

Goldman Sachs
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The S&P 500 has fallen nearly 19% this year, and even briefly took a stroll through bear market territory on Friday. Current forecasts ranging from “tough months ahead” to “tougher months ahead” present a fair encapsulation of the widespread macroeconomic pessimism.

True, stock valuations are way down, but company insiders (aka executives and board members) aren’t acting as if the sky were falling. No canaries in the coal mine, these insiders are hawks on the prowl, and with the benefit of their hi-res view into company financials, many are going hunting.

Business Insider

For all the talk of a possible recession, insiders at S&P 500 firms have kept relatively calm. Something to keep in mind: more share purchasing than selling by corporate insiders signaled the bottom of the bear market in 2015, 2018, and 2020, and the current trend is tipping toward more buying than selling, hinting at a quiet confidence in valuations — in the long term, at least:

  • Over 1,100 corporate insiders have bought shares in their company this month. The number of buyers is on track to exceed that of sellers for the first time since March 2020, according to the Washington Service. High-profile executive buyers in May include the CEOs of Charles Schwab, Starbucks, Intel, and GM.
  • Why are they holding their stake, and even upping it? According to Bloomberg, if current forecasts play out, S&P 500 companies will make a combined $248 per share in 2023. That would mean the index as a whole is trading at 16 times profits — a bargain by historical standards. That’s a sign executives see their employers delivering profits down the road, and are thus eager to nab a discount on the shares now.

“It is a function of investors [operating] at the ‘30,000-foot level’ or ‘macro’ whereas insiders are functioning at the ‘boots on the ground’, company-fundamentals level,” Craig Callahan, CEO of Icon Advisers, told Bloomberg. “We believe the company-fundamentals view is usually correct.”

Shades of Martha: Securities and Exchange Commission chair Gary Gensler has said the agency is examining ways to tighten insider trading rules. A University of Pennsylvania study found that after company insiders sold $50 million in shares on a single day, their company’s stock underperformed peers by 3% in the next month and 6% over the next six months.