Over the past few weeks some of the bigger companies in the world have seen interesting insider buying patterns. This is a very good sign for the economy overall as insiders of major companies tend to have a good insight into future demand for goods and services. However, it’s not an accurate gauge of where the market in general might go.
When insiders of large companies buy their own shares, you should think about following suit. However, these types of insider buys differ from those of smaller companies. Buyers at big companies tend to be the types who are looking for multi-year holding periods while those at smaller companies tend to look for gains to occur within a year to 18 months.
Right now insiders at General Electric (GE) and JP Morgan (JPM) are buying stock in their own respective companies. The CEO of GE, Jeffery Immelt spent a cool $3.5 million on his own shares over the past couple of months with a big $2.5 million open market buy last week. What’s interesting about the buys at GE and JP Morgan is that they represent two opposite ends of the market’s sectors.
GE is a major industrial company that is involved in everything from energy and medical devices to aircraft engines. While JP Morgan is a major player in the financial sector and the biggest bank in the US and one of the largest in the world. It’s an earnings powerhouse even in light of all the money it has spent on legacy issues stemming from the Financial Crisis of 2008.
JP Morgan is a huge consumer and commercial lender as well. Positive sentiment at the company indicates that lending is picking up and consumer debt defaults are manageable.
When both industrial and financial companies are bullish on their own prospects it usually means that the underlying strength in the economy is also quite solid. That sentiment is being borne out by the market, which, after a recent hiccup, is back to setting new highs. It’s also being borne out by the numbers coming out of the “official” sources. Just last week the number of new job created came in at 175,000 for the previous month and that was a surprise considering the bad weather that hampered a good chunk of economic growth across the Northeast and the Midwestern United States.
It’s also being borne out by the interest rate complex, which is seeing rates creep up to their highest levels since January. Contrary to public and professional opinion, rising interest rates are not a bad thing when the rise is not accompanied by inflation. Rising interest rates now are indicative of a stronger economy where money is being borrowed, lent and spent. This in turn spurs employment and consumption of both small and big-ticket items. The “official” unemployment rate stands at 6.7% today just a scant 200 basis points below the Fed’s target rate. While this is not full employment by any means, it’s a darn sight better that the close to double digit rates from three years ago.
If you are looking for investment ideas in companies that are strong fundamentally, then perhaps it is time to turn your attention to the industrial and financial sectors where strong earnings should drive up share prices in coming quarters and also propel dividend payments higher. The top dogs at two companies that have a ticket to the inside track are doing just that.
To your wealth,
Banker X.
P.S. from Midas Legacy Editor: Through his Washington contacts, Banker X exposes insider trading activity and sends appropriate specific BUY recommendations to subscribers to his C.H.I.R.P. service.
