I like to see chief executives step up and buy their company’s shares amid bad news. It’s a sign of faith that goes beyond rhetoric.
Here are three recent instances.
KKR
The private-equity industry — consisting of partnerships that invest in companies that aren’t publicly traded — has suffered a three-year slowdown in profits and incoming investments.
One of the best-known companies in the field is KKR & Co., formerly known as Kohlberg Kravis Roberts & Co. Although it invests in private companies, KKR itself is public, having made its initial public offering in 2010.
In the 1980s and 1990s, before it went public, KKR was one of a handful of dominant firms in private equity. Today the field is overcrowded, and high interest rates are hurting.
A little over a year ago, KKR stock hit an all-time high of $165.82. Since then, it’s been pretty much straight down. The price as of March 6 was about $91.
Five KKR insiders purchased shares in February and early March. The firm’s co-CEOs, Joseph Bae and Scott Nuttall, each spent more than $16 million. In total, Nuttall owns about $1.8 billion in KKR stock, and Bae about $1.6 billion.
Three directors also purchased shares.
Even after the recent slump, KKR shares have given investors a return of 584% over the past 10 years. I think the company will return to form.
ServiceNow
Lately you hear a lot of noise about how artificial intelligence is going to destroy software companies. In my view, AI is more likely to enhance software products, increasing their value.
William McDermott, CEO of ServiceNow Inc., bought $3 million worth of his company’s stock in late February.
ServiceNow stock started the year at about $153 a share, but it dropped below $100 in February. McDermott bought pretty close to the low, at $104.60 on Feb. 27. Five trading days later, the stock had rebounded to $124, giving McDermott almost a 19% gain.
It was the first insider purchase by any ServiceNow executive since November 2019, when McDermott last bought shares.
Based in Santa Clara, Calif., ServiceNow makes software to automate companies’ core functions, especially information technology.
Walker & Dunlop
Commercial real estate has been in the doldrums ever since the pandemic hit in 2020. If people work at home, who needs office buildings? I don’t think the industry is out of the woods yet, but there are some early glimmerings of recovery.
Walker & Dunlop Inc. (WD), based in Bethesda, Md., provides financing packages for apartment buildings and other commercial buildings. It has shown a profit for 18 years in a row, but lately the profits have been slender.
The stock hit an all-time high of about $155 in 2021 but has descended to about $48.
CEO William Walker spent about $2 million to buy shares in early March. It was his first purchase since 2013. In between, he had sold shares on 16 occasions.
The stock is selling for less than book value (corporate net worth per share). I don’t think it’s good for a quick profit, but I think it has good possibilities long-term.
Performance
This is the 77th column I’ve written about insider purchases and sales. I can calculate the returns for 67 columns — all those written from 1999 through a year ago.
My picks from a year ago did well. I noted insider selling in five stocks. Four did worse than the Standard & Poor’s 500 Total Return Index. Doximity Inc. (DOCS) did the worst, falling 58% in a rising market. The one outperformer was JP Morgan Chase & Co., up 27%.
I also recommended three energy stocks that showed insider purchases. Two of them beat the index, notably Noble Corp., which advanced 99%. The dud was Dorchester Minerals LP (DMLP), which fell 2%.
Longer-term results are mixed. Stocks where I noted insider selling have trailed the S&P by an average of 4.8 percentage points per year.
Stocks I said to avoid, despite insider buying, have lagged the S&P by 24 percentage points a year.
Stocks where I noted insider buying but made no comment (or an ambiguous comment) have beaten the index by 14 points a year.
All that is fine. But there’s a fly in the ointment. The stocks I recommended based on insider buying have lagged the S&P by 2.3 percentage points per year.
So, my record is mixed. But I believe insider trades contain valuable information, and I will keep reporting on them — with, I hope, better results on the buy side.