One area, probably the area that has the most insider buying by sheer numbers of companies and officers is the mortgage REIT sector. Names that I’m watching there are Annaly NLY, Chimera CIM, PennyMac Mortgage Investment Trust PMT, and a few others. These are all REITS paying outsized distributions with yields of 12-15%. The conventional wisdom of course is that anything with this high of yield is risky and probably will end up cutting their distribution. It’s just a matter of when not if.
But what if that’s already in the stock? That’s hard to know. That’s like predicting stock price direction or for that matter the market direction. What if housing is improving at a rate that could bail out some of their mortgages or at least more than the Street accounts for? I pay a lot of attention to insider trading as reported to the SEC. This is free information that anyone can get a hold of with a minimum of effort. It’s the interpretation of it that’s critical. First of all I try to weed out smallish buys that could be window dressing. Second I dismiss large 10% owners because they are usually mutual funds, hedge funds, or other investment entities. Just because they are large, they are not necessarily the smart money or the careful and cannot afford to lose money. I much rather follow a CFO making $400k than a hedge fund titan making millions. And there are a lot of insiders to follow in this sector. It bears further research and sooner than later.