Corporate insiders have bought aggressively in May. The ratio of insider buy to sell value was at its highest monthly level since March 2020 as of May 23rd. At over 1200 inside buyers, it was the biggest buy month so far and appeared on a course to outnumber sellers for the first time in more than two years. Among the buyers were CEOs at major companies. According to VerityData/InsiderScore.com, on May 6th, Uber CEO Dara Khosrowshahi, bought $5.3 million worth of stock. Paramount Global, Starbucks, General Motors, General Electric, and Carnival Corp have also shown strong insider buying activity.
Some of the buyers were picking up stock that was down over 25% for the year.
Historically insider buying can predict a market bottom. The last time insider buying surged was March 2020, and it coincided with the market bottom. That was followed by the market soaring immediately afterward in the face of the Fed stepping in and supporting the markets.
Professional investors usually grow optimistic in the face of insider buying, as they view it as a sign that individuals with the most detailed knowledge about their respective companies have concluded there is considerable upside potential due to market conditions.
Analysts note however while the insider buying we are seeing now is strong, it is not as overwhelming as previous occurrences. They feel it may pay for retail investors to pause and pay attention, and see if conditions continue to show indications of the market having found its bottom, rather than jump in with both feet.
Ben Silverman, the director of research at VerityData said, “All those periods insiders made really, really astute market bottom calls, and that was clear by the historic volume of buying at the time. While the numbers look good now, they’re at sort of the low end where they were during those periods. We really wanted to see buying numbers build, and then sustain for a couple of weeks. And instead we saw buying numbers backtrack,”
Some have noted the buying being seen could also have been buoyed by the timing relative to earnings report. After reporting first quarter earnings, insiders are allowed to trade a little more freely, and this often produces a surge of activity in the first half of May. VerityData’s research does show activity beginning to trail off slightly as the month has worn on.
Still it is interesting many insiders believe the market may have reached a point where stocks are worth more than they are valued at, even if there may be some pain ahead.
