Insider Buying: Insiders Are Going Nuts For Stock…

| August 19, 2011 | 0 Comments

The past few weeks have been, how shall I say this… interesting… for investors.

Incredible volatility is turning the markets into a veritable roller coaster. Quick rallies followed by death defying drops are all too common.

It’s enough to make even the most seasoned investor turn green in the face.

But as wild as these ups and downs are, top business insiders are confident in the potential of their businesses.

How can you tell?

Insider buying is at the highest levels since March 2009.

Maybe you remember, that was right before the stock market kicked off a sensational two-year bull run.  Back then there was a lot of uncertainty and fear in the air, just like there is now.

But insiders tossed their doubts aside and went on a buying binge.

And now they’re at it again…

Corporate officers, directors, and beneficial owners of more than 10% are required to report any transactions of their company’s stock to the SEC.

Now remember, there can be a number of reasons company insiders sell shares of company stock.  Maybe they need cash for a big purchase, to fund retirement, or just to pay expenses… the reasons for selling are many.

But there’s only one reason for insiders to buy shares of their own company on the open market- to profit from it.

And that’s exactly what Fortune Brands (FO) insider Bill Ackman just did.  He’s the head of Pershing Square Capital Management and a 10% owner in Fortune Brands.

He just bought a little over $193 million worth of Fortune Brands stock last week.

That’s a huge vote of confidence…

According to the Form 4 posting on www.sec.gov, Mr. Ackman made his purchases of Fortune Brands stock between $52.67 and $54.47 per share.  The big buy brings Pershing Square’s total Fortune Brands position to a hefty 20.8 million shares.

Clearly, Mr. Ackman wouldn’t be putting this kind of money to work if he thought shares may plummet in the near future.

Not only does he have confidence in FO, he must think the market as a whole is close to bottoming.  After all, if the broad market continues to fall, FO will get dragged down right along with it.

Just like it has over the past month…

As you can see, FO got walloped along with everything else these past few weeks.  In fact, the stock’s down a blistering 17% since July 22nd. But at these levels, Ackman believes Fortune Brands is wildly undervalued.

Does Ackman’s insider purchase point to a rebound for FO and stocks in general?

Given the current fear and volatility in the marketplace, I doubt Mr. Ackman pegged the bottom.  We will likely see some more downside to FO and the markets near term.

But I highly doubt Mr. Ackman was trying to ‘time’ a bottom in stocks in the first place.  Large investors look for value, and Ackman must love what he sees right now.

As do a lot of other insiders…

If the US economy manages to avoid another recession and Europe can somehow silence the doubts about its banking sector- these insiders could come out smelling like a rose.

If you’re buying now… maybe you will too.

Tags: , ,

Category: Stocks

About the Author ()

Justin Bennett is the editor of Commodity ETF Alert, an investment advisory focused on profiting from the ebb and flow of important commodities via ETFs. The commodity veteran and options specialist is also a regular contributor to the Dynamic Wealth Report. Every week, Justin shares his thoughts with our readers on a variety of commodity-related topics. Justin is also a frequent contributor to Commodity Trading Research’s free daily e-letter. And he’s the editor of another highly successful and popular investment advisory, the Options Profit Pipeline.

Leave a Reply

Your email address will not be published.