By Michael Brush, MarketWatch
So in the end, it’s most likely going to turn out that insiders buying the March pullback were making smart moves, even if many of them were early — often the case with insiders.
Consider Warren Buffett’s Berkshire Hathaway /zigman2/quotes/208872451/composite BRK.A +0.05% /zigman2/quotes/200060694/composite BRK.B +0.03% . It loaded up on Delta Air Lines /zigman2/quotes/200327741/composite DAL 0.00% with a $45 million purchase around $46-$47 early in the crisis, only to see the stock drop to $20.
Richard Kinder, who was an early pioneer in energy infrastructure development, purchased $11.8 million worth of shares of his Kinder Morgan /zigman2/quotes/208455654/composite KMI -1.02% infrastructure company above $20, only to see it fall to $9.42. He bought another $13.6 million worth at prices down to $15.50 in the subsequent weakness.
Carl Icahn is definitely one of the smarter investors around. His shop bought $84.8 million worth Hertz Global Holdings /zigman2/quotes/200655672/composite HTZ +8.03% at $7-$8 in the March pullback only to see it move to $3.18.
But even these early buys will probably work out. These stocks are already putting in nice moves off their lows. Delta Air Lines and Kinder Morgan this week were up at least 35% from their lows. Hertz was up over 160% from its March bottom to trade in the mid-$8 range, meaning Icahn’s most recent purchases are already profitable. Icahn’s experience with Hertz reinforces the takeaway that insiders are often early, but also often right.
Here’s a quick tour of the “worst” sectors that insiders are buying — providing a contrarian signal which suggests that you might want to get exposure to these groups, too.
Planes emptied out early in the crisis. Who wanted to be a tube full of strangers for hours, even if the air is well filtered? Then airlines threw in the towel and shut down routes extensively to control costs. As their shares tanked, airline sector insiders bought them. Besides the Berkshire Hathaway purchase of Delta Air Lines (Buffett’s shop has to report as an “insider” because it owns a lot of stock), insiders were buying SkyWest /zigman2/quotes/205631497/composite SKYW -1.15% and Spirit Airlines /zigman2/quotes/205782179/composite SAVE -0.36% . They were also buying stealth airline plays like TransDigm Group /zigman2/quotes/203902625/composite TDG +1.77% , which sells parts used in the sector.
In the weak economy and low interest-rate environment that an extended lockdown would create, banks and market-oriented financial companies wouldn’t stand a chance, said the bear thesis. So investors dumped them. In the mayhem, insiders were picking up the discounted stock. They were significant buyers at Wells Fargo /zigman2/quotes/203790192/composite WFC +0.37% ($5.5 million worth), PNC Financial Services /zigman2/quotes/203416310/composite PNC +0.43% ($5 million worth) and Raymond James Financial /zigman2/quotes/201697413/composite RJF +1.43% ($1.5 million worth), for example.
As job losses mount in a shutdown economy, no one would be able to afford to take advantage of the low interest rates to buy a home. Sell the sector, according to this investor meme. Insiders are readily taking the other side of that trade, buying shares of Toll Brothers /zigman2/quotes/201912487/composite TOL +5.13% , Home Depot /zigman2/quotes/208081807/composite HD +0.74% , Lowe’s Companies /zigman2/quotes/205563664/composite LOW +0.54% , and Amerco, the parent company of U-Haul. among others /zigman2/quotes/204659063/composite UHAL +2.05% .
Public gathering place stocks
No one will go within 6 feet of each other for months if not longer. So forget about any businesses that involve congregating large numbers of people. Investors believing this thesis have been dumping restaurant, amusement park, gym and gaming stocks.
Insiders love the other side of that trade. I’ve pointed out how they’ve been buying Six Flags Entertainment /zigman2/quotes/208050417/composite SIX +2.41% and Cedar Fair /zigman2/quotes/205497488/composite FUN -0.86% in this column. But they’ve also been purchasing Churchill Downs /zigman2/quotes/205054336/composite CHDN +2.93% even with the Kentucky Derby postponed from the first Saturday in May to Sept. 5 this year.
The energy sector has problems of its own, given how Russia and Saudi Arabia have parted ways on price fixing. Now it’s a race to the bottom for oil prices /zigman2/quotes/209723049/delayed CL00 -0.12% , as they battle for market share. But energy stocks are also unattractive in a recession. Investors worrying that we will see a long drawn-out economic pullback have really dumped energy stocks.
Insiders have been happy to snap them up. They’ve been buying Cheniere Energy /zigman2/quotes/206202121/composite LNG -0.08% , Hess /zigman2/quotes/203832174/composite HES +1.99% , Halliburton /zigman2/quotes/210488727/composite HAL +0.48% and Murphy Oil /zigman2/quotes/209008919/composite MUR +2.32% , among others. As for the shootout between Russia and Saudi Arabia, that battle is weighing on their national budgets so much that they are likely to resolve their differences before too long.
At the time of publication, Michael Brush had no positions in any stocks mentioned in this column. Brush has suggested DAL, KMI, SKYW, TDG, WF, PNC, RJF, HD, LOW, SIX, FUN and LNG in his stock newsletter Brush Up on Stocks. Brush is a Manhattan-based financial writer who has covered business for the New York Times and The Economist Group, and he attended Columbia Business School.