Northeast Ohio insiders get busy buying their companies' shares

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CLEVELAND, Ohio -- Northeast Ohio chief executives, board members and other corporate insiders are on a buying spree, snapping up shares in their own companies even as nervous investors pull money out of the stock market.

The pace at which insiders scooped up shares during August hasn't happened since March 2009 -- the point in the last recession when the market hit bottom and pivoted to begin a two-year rally.

Officers and directors acquire stock in their companies to capture a deal for themselves and, perhaps more importantly, to inform potential investors that they view the stock as a good buy.

Market watcher Ben Silverman said the recent burst of insider buying could be a bellwether of market gains.

"We started to see a shift in late July. It was turning toward what we call a buy bias," said Silverman, the director of research at InsiderScore, a New Jersey-based company that tracks buying and selling by corporate chieftans. "And then in the first week in August we saw a dramatic increase in insider buying. Then in the second week in August we saw an extreme increase in insider buying."

Locally, the biggest purchase in August was by Robert Small, a board member at aerospace parts maker TransDigm Group. Small bought more than 57,000 TransDigm shares on Aug. 16 with a market value of about $5.1 million. Small is managing director of Berkshire Partners, a private equity firm in Boston.

Insiders usually sell more of their companies' shares than they buy because so much of their compensation includes stock that they typically liquidate.

But in August, Northeast Ohio insiders bought their companies' stock 43 times and sold it 18 times, according to data from Thomson Reuters.

The same pattern played out nationwide. Research firm TrimTabs said insider purchases soared from $246 million in July to $1.7 billion in August, the most insider buys since just over $1 billion-worth in March 2009.

TransDigm last week approved the repurchase of up to $100 million of its common stock, a sign that the company believes its shares are undervalued, said Michael Ellis, a partner in securities law at Porter Wright in Cleveland

TransDigm closed Tuesday at $89.90, down $1.47 or 1.6 percent on the New York Stock Exchange. The company's shares marched from a low of $57 a year ago to a peak of $94 in early July. The aircraft parts maker posted better-than-expected quarterly results in early August and raised its full-year outlook, citing an improved commercial aerospace market.

Terrance Ahern, board chairman of Developers Diversified Realty, bought 100,000 shares valued at $1.1 million on Aug. 8. Developers Diversified owns and manages 520 shopping centers and retail properties across the United States and in Puerto Rico and Brazil. Neither Ahern nor Small returned calls seeking comment on their acquisitions.

At Cliffs Natural Resources, executives went into the open market and bought blocks of shares three times in the past 30 days.

A big spur to the iron ore and coal mining company is the frenzied construction boom in China driving demand for raw materials. After reaching nearly $102 a share in mid-July, Cliffs shares plunged with the deteriorating market, shrinking to less than $68 a share in the first week of August. Insiders then made their move.

Cliffs' stock is on the rise again with iron-ore prices hitting three-month highs because of strong China demand. It closed Tuesday at $82.06, up 84 cents or 1 percent.

Spokeswoman Patricia Persico said Cliffs doesn't comment on personal financial decisions by insiders. Instead, she pointed to Cliffs' announcement Aug. 15 that it would repurchase up to four million of its outstanding common shares. Volatility in global stock markets allowed Cliffs to "opportunistically acquire shares at attractive valuations," it said at the time.

Directors and officers at amusement park and resort chain Cedar Fair Entertainment Co. accounted for four of the region's biggest insider purchases in August.

The buyers were three veterans of the company and a newcomer, President Matthew Ouimet, a former Disney executive.

Cedar Fair lost $32 million last year mostly because of its struggling Great America parks. Yet it had all-time revenue of $978 million and record attendance of almost 23 million. Crowds this July were 5 percent higher than a year earlier, with average visitor spending edging up 1 percent to $38.95.

"They're very excited about the successes we've had over the past year," spokeswoman Stacy Frole said of Cedar Fair's management team.

Stock analysts caution that insider buys are no certain indicator that a company's shares -- or the market as a whole -- is about to take off.

Sometimes insiders accumulate stock to prop up a sagging share price, Seeking Alpha contributor Edgar Ambartsoumian wrote on the investor-advisory site.

Jonathan Moreland, research director at InsiderInsights, said prognosticators were too quick to call a market bottom based on the insider-buying spike in early August. However, just in the past week, he said, the market has exhibited bullish signs that it's at a "tradeable bottom" -- a market worth investing in.

"We think it's the wrong question to ask -- if it is the bottom, because we don't think anybody can call it. All investors need to know is it's tradeable," Moreland said, adding, "We think there is still risk to investors using all of one's cash at one time."