By Michael Brush, MarketWatch
Throughout these topsy-turvy times of scary health news, city lockdowns and daily market moves of 5% or more in both directions, there’s been one comforting constant.
Corporate insiders — executives and directors who buy shares in their own company — are loving this pullback. They’ve been steadily buying in amounts I’ve never seen in the 10 years I’ve used insider purchases to find investment and trading ideas in my stock newsletter Brush Up on Stocks .
Here’s another reassuring sign. Since the S&P 500 index /zigman2/quotes/210599714/realtime SPX +0.19% , Dow Jones Industrial Average /zigman2/quotes/210598065/realtime DJIA +0.06% and Nasdaq Composite Index /zigman2/quotes/210598365/realtime COMP +0.87% really began falling apart after March 5, insiders have been heavily buying all the areas that will supposedly get hit the hardest by this coronavirus and the COVID-19 illness it causes. Think airlines, public gathering places companies like amusement parks as well as energy, financials, industrials and basic materials.
Corporate insiders have stayed far away from the defensive names and “dividend aristocrats” that many talking heads now want you to purchase. Below are 20 examples of companies where insiders are buying in substantial enough size to be a significant signal, according to the system I use for my letter.
Why are insiders buying when everyone else is selling? The short answer is they think their stocks are too cheap. They have a habit of knowing when this is the case. Insiders are often savvy buyers, according to academic research.
Other than this obvious point, insiders, like me, may have noticed the following.
• Fears about COVID-19 seem to be exaggerated. Yes, all flu viruses are risky. They regularly take a lot of lives. But President Donald Trump is now saying what I’ve said from the start: The 2.5%-3% “mortality rate” is vastly overstated and misleading because so many people have had such mild cases they never get included in the infection rate. That oversight boosts the supposed mortality rate.
• It’s been clear from the start that the Federal Reserve and politicians in Washington, D.C. would respond with shock-and-awe monetary and fiscal stimulus. “It’s not their fault” is a common refrain we hear from politicians lining up aid to the worst-off sectors like airlines and cruise lines.
• If the U.S. tracks China and South Korea, incidents of new cases and deaths will peak and begin to decline soon. Baird biotech analyst Brian Skorney thinks this could happen in two to four weeks.
• Former Goldman Sachs CEO Lloyd Blankfein and others are pushing back on the national lockdown, noting that it too can cause serious health issues. Trump is running with this idea, citing potential suicides and severe depression linked to job loss.
• The U.S. is a lot different from Italy. So Italy won’t be a model for lethality rates here. A lot more Italians have been lifelong smokers, damaging their lungs, which increases vulnerability. In Italy’s family-oriented culture, there’s a lot more daily interaction between the elderly and youth, providing greater opportunity for the disease to spread. There’s also a lot more casual physical contact among friends in social settings, particularly when greeting. Phone-tracking studies show a lot of Italians ignored their lockdown, whereas the streets of New York have been vacant since Gov. Mario Cuomo told everyone to stay inside.
• Studies show COVID-19 thrives and spreads in a narrow temperature and humidity range. As temperatures and humidity levels begin to rise, the spread should decline.
Of course, this coronavirus will be back next flu season. But by then we may be closer to finding a therapy or a vaccine. Or enough people will have gotten it that it won’t rip through the population as quickly.