As their share prices have gotten pummeled over the Bernanke “taper scare,” I’ve become increasingly bullish on REITs. As I’ve written in recent weeks, I believe this is an excellent time to accumulate shares of high-quality “buy and forget” triple-net equity REITs. But I also think it’s an excellent time to take a position in their more speculative cousins, mortgage REITs.
I’m not alone on this view. The company insiders would appear to agree.
A company’s management and directors can sell their company’s stock for any number of reasons. Perhaps they executed stock options or want to diversify their portfolio…or maybe their kids’ college tuition bill came due. Unless the selling is widespread among several insiders, it’s hard to draw firm conclusions about insider selling.
Insider buying is a very different story, however. There is only one reason why a company insider would buy their own stock on the open market: they consider it a good investment.
Trading on material non-public information is illegal, of course. But there is nothing illegal about a company director using their knowledge of the business and their feelings about its prospects to make an informed purchase. And by following their SEC filings, we can do the same.
I’ll start with American Realty Capital Properties (ARCP), a triple-net retail REIT I hold in my Dividend Growth Portfolio. In the month of August alone, six company officers bought nearly $3 million in stock between them. Their average price? $13.73. At today’s prices, you can pick of ARCP’s shares for less than what the insiders paid and enjoy a solid 6.7% dividend yield.
Let’s also take a look at the recent insider trading activity at Annaly Capital (NLY), the largest and most popular mortgage REIT. Chairman and CEO Wellington Denahan-Norris spent $2 million of her own money buying shares in August. Three other company officers made significant purchases in the month of August as well.
The usual caveats apply here. You should always do your own research and you should never blindly follow another investor—even a company insider. But watching the trading moves of company insiders can provide useful insight when you’re contemplating a contrarian value trade.
Disclosures: Sizemore Capital is long ARCP. This article first appeared on TraderPlanet.
Charles Lewis Sizemore, CFA, is the editor of the Sizemore Investment Letter and the chief investment officer of investments firm Sizemore Capital Management. As of this writing, he was long ARCP. Click here to learn about his top 5 global investing trends and get your copy of “The Top 5 Million Dollar Trends of 2013.”