After gutting buybacks to conserve cash, American corporations are repurchasing shares again. Corporate officers, on the other hand, are showing a bit less enthusiasm for their employers’ shares.
In the first two weeks of the new year, a total of 1,000 insiders sold their own stock and 128 bought shares, leaving the sell-to-buy ratio poised for the highest monthly reading in data going back to 1988, according to Washington Service. Meanwhile, corporations announced $29 billion of buybacks over the stretch, up 46% from a year earlier, data compiled by Birinyi Associates show.
While there’s noise in the data — one number is executed sales, the other planned purchases, and the latter is a much bigger sum — an investor trying to glean a signal could be forgiven for being confused. Share buying by corporate officers is dwindling after a 10-month rally drove valuations to levels not seen since the dot-com era. Companies are evincing less concern as they seek a destination for their cash.
“Buybacks are a capital allocation decision with other people’s money whereas you’ve got to be really bullish to put your own money in there,” said Bill Callahan, an investment strategist at Schroders. “Managers know their companies are fairly valued and they’re not going to rush to put more of their own money into the companies.”
It’s the not first time that companies and their executives have diverged like this. In 2014, insider buying dried up while corporate America spent a near-record amount of money on buybacks. That year, the S&P 500 advanced 11%. Since the end of December, the S&P 500 Buyback Index has climbed almost 6%, compared with a gain of 1.1% for the broader gauge.
Buybacks are bouncing back as companies, sitting with record cash, are forecast to snap several quarters of profit declines this year. Corporate insiders, on the other hand, are retreating after their buying correctly signaled the bottom in March. The sell-buy ratio tracked by Washington Service exceeded 4-to-1 in November for the first time in almost two years, and has since stayed elevated.
Going by dollars, company executives sold $300 million worth of shares this year through Friday, 16 times the total they purchased, according to Securities and Exchange Commission filings compiled by Bloomberg.
While factors other than valuations can influence insiders’ decisions to sell, their action warrants caution to Mark Freeman, chief investment officer at Socorro Asset Management LP.
“Investors always want to make sure their objectives are aligned with the management,” Freeman said. “Ideally you would like to see that management feels that what they own is valuable and going to continue to grow in value, as opposed to the potential message that could be ‘well, now is a good time to sell.’”
—With assistance from Claire Ballentine.
This article was provided by Bloomberg News.