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Insiders Are Buying the Market's Most Hated Sector

By Stansberry Research Interview Series
Wednesday, December 12, 2007

Things are looking bullish...
 
The insider sales-to-purchases ratio was 13 in November. In other words, for every $13 corporate insiders took out of the market, $1 went back in.
 
I realize this doesn't sound terribly bullish, but remember that U.S. executives receive a ton of their pay via stock compensation. Stock options account for nearly half (48%) of CEO pay at Fortune 500 companies. So insider sales always outnumber insider purchases.
 
Because of this, anytime the sales-to-purchases ratio falls below 20, it's considered bullish... 13 to 1 is pretty darn bullish.
 
In dollar terms, insiders bought $297 million worth of stock in November. This isn't far off from the $330 million they bought in August before an 8% market rally. And in November, insiders only sold $3.8 billion worth of stock. That's the lowest November amount since 2002.
 
Insiders are typically early to a big move... and often precede the market by at least six months. So these recent purchases don't necessarily forecast a massive run-up in January. What they do forecast, however, is that by mid 2008, certain sectors should be outperforming the overall indexes.
 
Those sectors are homebuilders, regional banks, and Internet retail companies. Throw in asset management and oil & gas, and you've got 45% of the total insider buying for the month of November. Taken as a whole, these sectors only accounted for 7% of insider sales during October.
 
Homebuilder stocks are as attractive as toxic waste to the vast majority of investors, and the news is still horrible for these companies. Recently, Lennar announced it was selling 11,000 home sites – valued at $1.3 billion – to Morgan Stanley for just $525 million.
 
Meanwhile, insiders at the following homebuilders have begun buying:
 
Company
Symbol
Insider Purchases
NVR
NVR
$52.4 million
Meritage Homes
MTH
$14.9 million
Brookfield Homes
BHS
$5.3 million
Pulte Homes
PHM
$150,000
KB Home
KBH
$93,000
 
If you've got a contrarian streak, consider this list of what is likely the market's most hated sector as a jumping off point for ideas.
 
But keep in mind, insiders are usually early... While you're likely to make good money right now in homebuilders, it will be a bumpy ride.
 
Good trading,
 
Graham




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Market Watch
Symbol Price
Change
52-Wk
S&P 500 1221.53 +1.3% +10.1%
Oil 38.31 +1.4% -0.6%
Gold 138.07 +2.1% +16.3%
Silver 28.60 +2.4% +53.6%
US-Dollar 80.67 -0.8% +8.1%
Euro 1.32 +0.6% -12.1%
Volatility 18.01 -7.1% -19.8%
Gold Stocks 581.56 +3.0% +17.0%
10-Year Yield 3.02 +0.7% -10.7%

World ETFs
Symbol Price
Change
52-Wk
USA 122.89 +0.3% +11.3%
Canada 30.50 +0.2% +16.2%
Russia 21.94 +1.4% +18.1%
India 37.85 +0.3% +22.3%
Israel 16.69 +1.3% +10.8%
Japan 10.64 +0.6% +6.5%
Singapore 13.73 -1.1% +18.8%
Taiwan 14.78 +0.4% +19.2%
S. Korea 57.31 +1.3% +23.4%
S. Africa 71.87 +1.4% +28.2%
China 44.42 -1.4% -0.6%
Lat.America 53.17 +0.7% +8.4%

Sector ETFs
Symbol Price
Change
52-Wk
Oil Service 137.59 +1.0% +18.9%
Big Pharma 64.14 +0.0% -3.2%
Internet 72.07 -0.1% +23.4%
Semis 16.22 +1.2% +29.4%
Utilities 31.28 +0.2% +1.5%
Defense 18.52 +0.1% +10.6%
Nanotech 10.03 +0.4% +1.6%
Alt. Energy 10.08 +1.3% -3.3%
Water 18.49 +1.0% +14.5%
Insurance 16.14 +0.4% +21.1%
Biotech 20.54 -0.2% +28.1%
Retail 19.70 +0.3% +30.2%
Software 24.79 +0.8% +25.9%
Big Tech 53.87 +0.3% +22.7%
Construction 13.10 +0.9% +15.7%
Media 13.64 +0.5% +26.0%
Consumer Svcs 67.39 +0.2% +24.5%
Financials 55.04 +0.3% +7.4%
Health Care 64.30 +0.1% +2.0%
Industrials 63.54 +0.5% +21.0%
Basic Mat 74.35 +1.1% +25.3%
Real Estate 55.32 +0.1% +25.0%
Transportation 91.77 +0.7% +26.9%
Telecom 22.59 +0.5% +17.8%