Flash Report
We have posted a flash report update on nine of our coverage companies, and we dropped coverage for one of these companies. In the reports, we see underlying themes of improving cost-efficiencies, growing organically and through acquisitions, and fighting against supply chain and labour constraints. There are tons of important insights to be found in these reports, and we think that reports like these help to grasp a better understanding of the current investing environment.
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Report Update
We have posted a report update on TFI International (TFII). The company operates in the transportation and logistics industry and has a well-rounded set of operations spanning many geographies. Its acquisition of UPS Freight is beginning to yield solid results, and a lot of its business strategy remains in being acquisitive. With excellent year-over-year results, widely-diversified operations, and a focus on improving profitable growth, we think that this is a name to watch.
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Market Update
Markets have been consolidating over the past couple of weeks, following a big run-up in the month of March. The Bank of Canada announced a 50 basis point hike this past Wednesday and is planning on starting its quantitative tightening program on April 25. Earnings season has officially kicked off, starting with the financial sector showing mostly positive results. Bond yields continue to rise, putting further pressure on equities. There is a lot of information to digest in the current investing environment, and we wanted to take a step back and look at signs of confidence through corporate insider buying.
The Importance of Corporate Insider Buying
Corporate insiders include officers, directors, and certain shareholders, and we like to gauge the owners’ sentiment through their purchases. There are many different reasons why an insider might sell shares of their company, and often, there are more insiders selling than buying. Although, when insiders do purchase shares in their own company, it is worth noting because this often signals that they believe the company is undervalued or that the timing is right. One caveat to this is that although a corporate insider might be buying shares in their own company, it does not necessarily mean that the stock will increase in value.
Analyzing Recent Buying Activity
The stock market has been declining over the past several months, and typically when this happens, we do see insider buying activity begin to pick up. Vice versa when the market is making new all-time highs and increasing rapidly, we often see an uptick in insider selling. We think that it is important and encouraging to see corporate insiders increasing their buying activity during volatile and uncertain times such as the one today, and we decided to look at the data to support this thesis.
S&P 500 Companies - Insider Buying
We gathered insider purchases of the S&P 500 companies on several different timeframes (three months, six months, one year, and two years), and assessed whether the purchases over the past three and six months surpassed that of the past couple of years.
Over the past three months, 75 companies have made insider purchases for a total value of $97.0 million, and over the past six months, 116 companies have made insider purchases for a total value of $259.9 million. We have contrasted these same companies’ purchases against their purchases over the past year and analyzed whether they represented a larger percentage than their proportional amount of time. For example, insiders purchased a total of $97.0 million over the past three months, and those same companies purchased a total of $275.3 million over the past year, which represents 35% of purchases over the past year. In a perfect world, purchases made in a three-month period against a one year period should represent 25% (3 months / 12 months = 25%), however, if a company surpasses the proportionate amount of 25%, this signals that shares have been heavily bought up over the past three months.
What we can see below is that over the past three months, insider purchases have represented a larger amount of their total purchases over both one and two-year periods. This is compared to insider purchases made over the past six months, which represent a much more evenly distributed purchase volume compared to the past one and two years. It appears that the companies who have made insider purchases over the past three months are purchasing at a more demanding rate than they have over the past one- and two-year periods.
Source: Eikon
All Companies Greater Than $1 Billion Market Cap - Insider Buying
We have performed a similar analysis on all US companies that are above a $1 billion market cap (~2,000 companies). This time, we analyzed all insider purchases made over the past one and two years, and not limited only to those companies which purchased in the past three and six months. What the data below indicates to us is that $1.4 billion insider purchases were made in the past three months, and this is contrasted against $5.1 billion and $8.2 billion over the past one and two years, respectively. Both timelines, three and six months are trending above their proportionate volumes, indicating that insiders have been purchasing more aggressively over the past three and six months compared to the past one and two years.
Source: Eikon
Key Insights
We feel that the above data signals that insiders continue to buy shares in their own companies, and this can be an encouraging sign for investors. Since the 500 companies that make up the S&P 500 by and large represent what we understand to be the ‘market’, it is important that companies within the index are buying shares at a high rate. We suspect that as earnings season kicks off and the economy moves in the right direction, insiders will continue to see opportunity in their companies and purchase shares as the market remains below its all-time highs.
Best wishes for your investing!
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