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What Insiders Are Buying In The Market Downturn

 August 10, 2011 11:07 AM

In stressful times like these, it's important to distinguish between investors' appetite for stocks in general and the actual outlook of each company. The market plunge is related to top-down concerns about the U.S. economy, but a bottom-up approach is still warranted. This is because -- despite the weak stock market performance -- a company can do well even if its industry isn't doing that well. In some cases, even though a business is doing OK, the stock price is signaling distress and hitting all-time lows.

This is when officers, directors and major shareholders (collectively known as insiders) usually act. They have the best view of the company's stock fundamentals, so they gauge the company's health by the day. So when a choppy market pushes the stock down below any sort of fair value, these insiders can respond with their checkbooks. In fact, there's been a massive wave of insider-buying since the market hit the skids on July 22. To cover all of the names would take quite some time. But this should send a clear signal that there is value to be had in this market.

To focus investors' sights, I've limited the view to companies with at least $400,000 in recent insider-buying. I've also tossed out stocks that have rebounded as a result of this buying pressure. All of the stocks in the table below trade for less than what insiders have paid for them. But don't let that dishearten you. Insiders often have a long-term view and are prepared to wait out any short-term gyrations.


The book-value buyers
Financial stocks can often be found on insider-buying lists during tough times because insiders know tangible book value is a floor that is rarely breached. When a company's market value falls below this level, a solid buying opportunity emerges. Morgan Stanley (NYSE: MS), for example, is now valued at about $36 billion, well below the $47 million in tangible book value found on its balance sheet. This roused the interest of a range of company directors on the week of Aug. 1, as they bought nearly $4 million in stock when it hit a two-year low price of $19.28.

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