I often state that no one plays a better game of 3 Card Monte than Wall Street’s pirates in neckties. These guys have truly mastered the art of distraction (with the exception of the Great Houdini). To emphasize my point, consider the following video as a metaphor for what occurs in the stock market.
The narrator represents typical financial media reporters and many of its market pundits who direct our attention/focus while participants from the white and black teams may symbolize bulls and bears engaged in the "seemingly" random chaos of the markets. And then there is the "X" factor which is often unknown and unanticipated by the general public and even so-called "contrarians".
So what distraction has the market thrown at us lately? This time it is insider buying in the midst of one of the biggest sell-offs in market history over the past 12 weeks. There are plenty of examples, but here are several to get started: Axciom Corp (ACXM); Jo-Ann Stores (JAS); Intuitive Surgical (ISRG); Genpact, Ltd. (G); PRG-Schultz Int (PRGX); Net 1 Ueps Tech (UEPS); G-Iii Apparel (GIII); Matrix Service (MTRX); I-Flow (IFLO); Ustarcom Inc (UTSI); and RightNow (RNOW).
This group of 11 stocks shares some compelling characteristics:
1) Each has a minimum average volume of 100k shares and their overall average volume is actually higher at 480k.
2) On average, they have declined -52.7% over 12 weeks, ranging from -65% to -44%.
3) What really catches my attention is that the net percent change in holdings for insiders during this same period increased an average of 70%, ranging from 246% to 15%.
4) In terms of projected earnings, all are expected to experience positive growth for the current year, ranging from 183% to 14.5%, with an overall average of 66%.
5) Last but not least, these stocks are cheap as they sport PEG ratios ranging from 1 to 0.29 (N/A for 5 of the 11) for an overall average of 0.62.
Although the market condition remains bearish and trending downward, now is the time to focus on the investment opportunities that the current financial crisis is providing. Many investment portfolios have been mauled by the bear and the natural inclination is to avoid further pain. Instinctively, this is somewhat logical and self-preserving until conditions improve. In the meantime, it pays to perform additional fundamental due diligence on some of the above names to separate the wheat from the chaff because judgement day for the bear is coming.