The market has been very confusing since Britons surprisingly passed the Brexit referendum, with bouts of "It's a disaster! Sell, sell, sell!" followed by "It's not so bad after all! Buy, buy, buy!" Everyone seems to have strong opinions about what's going to happen next, but no one knows for sure -- so I decided to see what corporate insiders have been doing over the past two weeks.
When insiders buy shares of their companies in the face of market and economic uncertainty, I take that as a powerful sign that they expect strong results and higher stock prices in the future.
Let's check out what's been going on at a few companies and sectors:
Bank stocks sold off sharply in the days right after the Brexit vote, with the selling even hitting regional and community banks. But insiders at several small banks took advantage of this weakness to add to their stakes at bargain prices.
For example, executives at Independent Bank Group (IBTX) and Prosperity Bancshares (PB) -- two of Texas' faster-growing banks -- bought more shares. Independent Bank's CEO, CFO and one director all boosted their holdings, as did the vice chair at Prosperity Bancshares.
Now, I'd been reluctant to buy either stock, as both look too expensive to me on a price-to-tangible-book-value basis. But insiders apparently disagree.
I was delighted to see that the CEO of Daktronics (DAKT) bought more of his company's stock in recent weeks.
I've mentioned DAKT in the past as one of my favorite three- to five-year "longshot" stocks (i.e., those that are longshots, but that could pay off big time).
The firm makes electronic-display systems like billboards, stadium displays and LED displays for road-management, mass-transit and aviation applications. I expect this to become a major growth industry in the years ahead, and Daktronics is among the segment's leading firms.
One of the directors at Leucadia (LUK) made a large insider buy in the week following the Brexit vote.
Many refer to LUK as a mini Berkshire Hathaway (BRK.B) . The company owns 100% of leading brokerage firm Jeffries, 100% of Leucadia Asset Management and 50% of leading commercial-real-estate lender Berkadia (Berkshire owns the other half). Leucadia also has stakes in beef processors, car dealerships and timber companies.
It's an interesting collection of assets, and I've done well owning this stock in the past. I don't own any right now, but I'm intrigued by LUK's insider buying and current discount to tangible book value.
Shares of staffing firm Korn Ferry (KFY) were falling even before the Brexit vote as the company continues integrating the recently acquired Hay Group.
CEO Stephen Payne addressed these challenges during KFY's last earnings call, saying: "We are in the midst of creating a new firm, with 65% of our colleagues new to the organization in the last three years due to expansion and growth."
Payne apparently thinks Korn Ferry is succeeding in these efforts, as he bought more KFY shares for himself during the volatile trading days following the Brexit vote. So did the Hay Group's former CEO, who serves as CFO of the combined entity.
Korn Ferry's valuation is certainly attractive at just 1.09x book value. I think that if the firm comes anywhere close to analysts' 2017 earnings estimates, there's a lot of upside to the stock.
The Bottom Line
Interest rates have fallen further in recent days, giving some support to stocks in spite of uncertainty that surrounds the Brexit vote and how it will impact the global economy.
I tend to agree with David Rubenstein of the Carlyle Group (CG) , who said yesterday: "My own view is that it is less likely that England will leave than people might think. When all the details come forward and all the complications are realized, I suspect they will not exit."
Of course, I'm probably not smart enough to predict what will ultimately happen. But I am smart enough to realize that when insiders make open-market purchases of their companies' stocks, that means they expect their firms' share prices to go higher in the years ahead.