Wednesday, 28 December 2011

Stock Market Outlook - The Insider View

Insiders - company executives and board members - know better than anyone else what the prospects are for their own company. Investors are wise to take account of their views, as we have previously written about in relation to individual companies in Insider Trading: Using It to Get an Edge. There is no better indication of what insiders really think than when they put their own cash on the line by buying shares when good prospects loom, or selling when things look dicey.

The same idea can be extended to overall market prospects by totalling up insider buying and selling and comparing the two. Fortunately, we don't have to dig the data out ourselves as the Canadian Insider publishes on its home page what it calls Insider Sentiment versus TSX. The screenshot below of that chart is how things look today.

Insiders appear to be mildly but not wildly optimistic right now, based on the sentiment ratio somewhere around 125% (i.e. a bit more buying than selling). That's nothing like the huge insider buying that occurred in late 2008 after the crash, shown on this CI page, when the sentiment indicator reached about 550%.

This cautious view seems to be in rough accord with mainstream media reports on professional forecaster outlooks such as this one in the Financial Post on a BMO presentation, or this collection of 2012 outlook articles at the Globe and Mail.

Naturally, the situation varies by individual company as insiders at some are big net buyers and while others are big net sellers, as also shown at CI for the past seven days total on the homepage. For those readers interested in individual company insider trading, we note in passing that the CEO of Canadian Insider Ted Dixon publishes a regular commentary on individual companies in the Globe and Mail's Who is Buying and Selling.
Among what might be called the pessimists are three of the big banks - Bank of Nova Scotia (TSX: BNS), National Bank (NA) and CIBC (CM). Could the insiders be worried about their bank stock being sideswiped by the "tough outlook" ahead as reported in the Financial Post? Also amongst the nabobs of negativity is TransCanada Corp (TRP) - is the selling a reaction to the Keystone XL fiasco?

On the optimistic side, insider buyers seem to be most prevalent amongst very small companies. One bigger company with an upsurge in buying is Canfor (CFP). Lumber companies have had a hard time for years but might the insiders be thinking that prospects are as good as this Financial Post article says 2012 will be? Another company with keen insiders is CCL Industries (CCL.B). In this case, the company's own outlook paints a modest growth story, so could it just be that it is under-valued, as the current P/E of 12.6 suggests. The sole stock analyst rating the company at TMX Money likes it too, recommending the stock as a "Strong Buy".

There's nothing like putting your money where your mouth is and the insiders are speaking. Of course insiders do not have infallible foresight but their opinion matters.

Disclaimer: this post is my opinion only and should not be construed as investment advice. Readers should be aware that the above comparisons are not an investment recommendation. They rest on other sources, whose accuracy is not guaranteed and the article may not interpret such results correctly. Do your homework before making any decisions and consider consulting a professional advisor.


Anonymous said...

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CanadianInvestor said...

Anon, that Uinvest looks like very high risk investing.