Wednesday, January 26

Elon Musk could be selling, but other experts are buying his shares

Elon Musk and Mark Zuckerberg have been shedding their company stocks, but this doesn’t mean that many corporate insiders follow suit. In fact, the opposite is true.

More than 1,300 corporate executives and officers have acquired shares in their own companies in the past 30 days, a rate that is higher than any month since March 2020, according to data compiled by the Washington Service. Meanwhile, the number of sellers remained below the monthly average this year.

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The willingness to jump into a market where share prices have doubled in 21 months can be seen as a vote of confidence in your business. Insiders have proven prescient in the past – their buying correctly pointed to the bottom of the bear market in March 2020. While the scope of current buying is much less robust, it is evidence that those with the clearest insights on the corporate health are seeing bargains.

“It’s a surprise there are such a high number of insider buying considering the markets are at high levels,” said Chad Morganlander, senior money manager at Washington Crossing Advisors. “It is a watermark for individual companies that their corporate insiders see a solid future.”

While the stock sales of billionaires like Tesla’s Musk and Meta Platforms Inc.’s Zuckerberg have drawn attention, insider trading has remained relatively subdued. During the past month, there were fewer than 2,400 sellers, down from the 2021 monthly average of about 2,500.

Compared to the previous two years, sales have soared, in part because Democrats have proposed raising taxes to make the rich pay for President Joe Biden’s economic agenda.

“While high stock prices were certainly one reason the insiders sold, taxes may be another,” said Ed Yardeni, president and founder of Yardeni Research Inc.

Energy Transfer LP founder Kelcy Warren and Aptinyx Inc. Chairman Norbert Riedel are among the insiders who recently bought their own shares.

As is often the norm, the number of buyers in the last month was still behind the sellers. And the buy-sell ratio of 0.58, even at a 19-month high, did not come close to the maximum reading of 2.19 during the pandemic’s low. Still, it’s an improvement over earlier this year, when the ratio fell to a record low of 0.19.

In a period when investor nerves were strained with the Federal Reserve turning aggressive for the first time in three years, the data may help quell some anxiety. Corporate earnings have provided key mainstay support during this bull market as companies continued to beat estimates at an unprecedented rate, overcoming hurdles from commodity inflation to supply chain bottlenecks.

Insider buying can solidify the bullish argument for individual stocks, though investors should be careful not to read the rise as a green light to double the broader market, according to Morganlander at Washington Crossing.

“At this tipping point, it should be company specific and investors should not take a broader view of the overall average based on that type of sentiment indicator,” he said. “It still has to deal with the hurdle of a fiscal policy slowdown in 2022 and of course a constant change in monetary policy around the world that could compress multiples.”

© 2021 Bloomberg

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