On a day that's as whippy as I have come across, where there all sorts of year 2000 currents, when smart money bought the S&P and sold the NASDAQ, we have to search for some sort of totem that at least makes us feel that the programs are working for us and not against us.
Oh, yes, of course it is programs because no human on no trading desk would ever buy Chevron (CVX) up 4 and sell all the cloud kings down 2-3%. It makes no sense. Humans wait for bids and hit them. They wait for offers and take them. Machines just go wild, running up stocks and cratering others, which is why, in the end, those who swear by these algorithms are doomed to lose money. Any time you buy high and sell low, even if you are astute at telling a good story to potential investors, you are playing with a losing hand.
So what can you count on if there is so much choppiness, so many programs moving stocks like they are tinker toys or Lincoln logs or spinners and silly putty?
Insider buying, that's what.
Insider buying like we got this morning with IBM (IBM) , a stock that had fallen from $153 to $115 in less than a month until Monday when we learned that five board members, including the CEO, Ginny Rometty, purchased a ton of stock.
Here goes: Ginny Rometty, who came on Mad Money last week to talk about the transformational buy of Red Hat (RHT) purchased $3 million in IBM stock from her own money--$1 million in the open market and $2 million through an IBM retirement fund.
Four board members -- all former chairmen and CEOs -- purchased stock, Sidney Taurel from Lilly (LLY) , nearly $500,000 worth; James Owens from Caterpillar (CAT) , $116,000; Rick Waddell from Northern Trust (NTRS) , $250,000; and Joe Swedish from Anthem (ANTM) , $233,000. These are all hitters.
Not only that but Martin Schroeter, a senior executive, purchased $575,000 worth. All of these buys were made by real hitters who could have bought a lot less and still have an impact. This was the first open market purchase that Rometty has made. It's a real commitment, especially when you consider than 67% of her compensation is stock based. She has a larger stock company than most company CEOS.
Now does this mean you should just blindly buy IBM? I think the move to buy Red Hat was a bold one and just because the cloud stocks have suddenly fallen out of favor is not a reason to shun the combo. I think IBM had to do something big after the last couple of quarters. I am a HUGE fan of Jim Whitehurst, who has produced a real growth company with real cash flow and a real mission to on-board to all of the different clouds out there. They could all be wrong. But IBM's balance sheet is actually a good one and its 5% yield seems pretty darned appetizing while you wait for Whitehurst to work his magic for Big Blue.
A tougher one to bet with is the CEO of General Electric, Larry Culp, who plunked down $2.2 million at $9.73 last week. Culp's the new CEO of a deeply troubled company but he was the old CEO of Danaher (DHR) , one of my favorites and an actionalertsplus.com club name because of its superb management.
Now there are myriad issues with General Electric: a balance sheet in need of shoring up, a dividend slashed again, which is hardly confidence inspiring, a power division which shows no real sign of turning around and a restructuring plan that I think keeps the bad and sells the good, the opposite of good portfolio management.
Plus let's not forget that two CEOs ago Jeff Immelt bought 100,000 shares at $28 in May of 2017, after buying 50,000 in November of 2016 at $29.2 and 50,000 in July of 2016 at $31.4
These purchases were, in retrospect, ill-advised and certainly not worth following.
Now Culp's purchase is certainly more informed. We know so much more about the problems at GE. The problem is that many analysts think the problems are nearly insurmountable or will take ages to fix and therefore aren't worth waiting around for.
I like Culp but it's not enough for me. Too many people have lost money bottom-fishing in GE to just say "Culp's sounding an all-clear."
But still, I can't ignore this. Why? Because there was a time back in the winter of 2016 when JPMorgan's (JPM) stock was pretty hated. Not as much as GE but certainly no fan favorite. That's when Jamie Dimon swooped in and bought 50,000 shares for $26 million. The price? $53. It was almost the exact bottom. No one knew the stock better than Jamie. Ever since that time I am all over the notion that you can't be too cynical about big purchases like those of IBM and GE.
How about corporate buybacks?
They can matter. We learned this weekend that Warren Buffett's Berkshire Hathaway (BRK.B) bought $1 billion of its own stock. This was a highly unusual buy and not just because it was the first one in six years. Berkshire Hathaway had a restriction that it would not buy stock at more than 1.2 times book value. The firm's most recent posted book value is 1.37 times. The company has $108 billion in cash and cash equivalents. You could look at it two ways: there's not much else to buy or that Buffett thinks his stock is very cheap. I am going with the latter.
Finally there's the biggest buyback of all, Apple's (AAPL) incredible purchasing machine. We just found out that last quarter the company spent $19.4 billion at $209.73. The previous quarter? Apple bought 112.8 million or $20 billion, at $177, and then before that, 137 million shares for $23.5 billion at $171. That's a monster amount of shares. So then the question is, do you think they are back in buying now at $200 if they paid $209 before. Do you think the CFO, Luca Maestri, would tell me last week that he thought his stock was a better buy than what he could earn with cash if he didn't like it here? Do you think he doesn't know about the reports about some order being pulled for more iPhones, as if we haven't heard that story a dozen times from $50 on the way to here?
Buyers right now are reaching for stocks that pay dividends and have big buybacks and are eschewing those pure growth companies. Some of it is President Trump's interview with Axios last night where he seems to be leaning toward probing Facebook (FB) , Amazon (AMZN) and Alphabet (GOOGL) for monopolistic practices. All I can say is be my guest. If you broke up these companies now I think they would sell for way more than they are selling for.
Of course it would be ugly at first. The fact is, though, it is unlikely to happen. These companies are filled with American ingenuity and if they dominate they dominate because no one wants to go against them. The government can't fine them out of existence, for heaven's sake.
But if you are looking for totems in choppy waters, it's always worth considering the insider buys especially when they are sizable.