By Michael Tsang and Alexis Xydias
Bloomberg News
Sunday, February 10, 2008

August Busch III, an AT&T board member since 1980, bought $2.27 million worth of shares in the company last month, his largest purchase on record. Monsanto director William Parfet added to his holdings in the seed producer for the first time in eight years.

Chief executives, directors and other senior officials in corporate America are buying more of their companies' shares than they're selling for the first time since 1995, prompting growing confidence that the stock market is poised to rally for the rest of the year.

The last seven times insiders bought more stock than they sold, from 1988 to 1995, the Standard & Poor's 500-stock index rallied an average 21 percent in the following 12 months, according to data compiled by the Washington Service, a Bethesda research firm that tracks insider data for more than 500 mostly institutional clients. The purchases show that executives think the worst may be over after stocks suffered the biggest January drop in 18 years on signs that the economy is in a recession.

"If it's so bad, how come these guys are gobbling up their own companies' stock? That's the telltale indicator," said Fritz Meyer, 57, a senior market strategist at AIM Advisors, which manages about $166 billion. "Companies are in the best possible position to assess the economic outlook."

Purchases by officers, directors and other senior managers of the 1,911 companies on the New York Stock Exchange reached $683 million in January, according to Securities and Exchange Commission filings compiled by the Washington Service.

Total purchases were 1.44 times more than sales, the first time in 13 years that insiders became net buyers. The S&P 500, the benchmark for American equities, hasn't fallen in the 12 months after insiders bought more than they sold, according to Washington Service data that go back 20 years.

Executives and directors may be underestimating the effect of the economic slowdown on earnings, said Robin Hepworth, 44, at Allchurches Investment Management Services.

Fourth-quarter profit dropped an average 25 percent for the 289 members of the S&P 500 that have reported so far, data compiled by Bloomberg News showed. The economy expanded at a 0.6 percent annual rate in the quarter, half the pace of economists' forecasts, as home construction plunged the most in 26 years and banks including Citigroup and Merrill Lynch wrote off mortgage-related losses.

While executives step up buying, short sellers are betting against U.S. firms like never before. The amount of short selling, when traders sell borrowed shares expecting to buy them back after prices fall, grew to 3.7 percent of the total shares on the NYSE last month, the highest since at least 1931.

Insiders "are being very brave," said Hepworth, a London-based manager at Allchurches, which oversees $2.6 billion. "Against the backdrop of everything going on, this is one positive."

Insiders have been buying stock in five of the 10 sectors tracked by the Washington Service: telecommunications, industrials, consumer discretionary, energy and materials.

Busch, 70, a former chairman and chief executive of Anheuser-Busch, the maker of Budweiser, bought 63,000 shares of AT&T at $36.10 a share Jan. 25, the largest amount since at least 2002, SEC filings showed. Busch last bought AT&T stock in March 2006, the filings show. The stock has risen 6 percent since the purchase, after plummeting 13 percent from the start of the year.

At Monsanto, Parfet bought 10,000 shares for almost $1 million on Jan. 17, after the stock plunged 22 percent in three days. The purchase was Parfet's first since he bought stock in the St. Louis company's initial public offering on October 2000 and was the largest by any Monsanto insider in five years, according to data compiled by InsiderScore.com, a firm that tracks insider transactions for more than 400 institutions. Monsanto has jumped 15 percent since then.

Executives outside the United States are also taking advantage of the sell-off to buy more shares. Insiders at 522 European companies were net buyers in the 50-day period ended Jan. 24, spending a combined $227,000 on each company, Deutsche Bank said in a Jan. 24 study, an increase of more than 1,000 percent since data collection began in July 2004.

"Insider buying does tend to send a positive message," said Frances Hudson, a strategist at Standard Life Investments in Edinburgh, Scotland, which oversees about $281 billion. "These are the people who should know how well the businesses are doing."

Eric Martin and Wendy Soong contributed to this report.