Kangas & Muzea: An Insider Chat

11/19/2004 12:00 am EST


George Muzea

Author, The Vital Few vs. The Trivial Many

Each Friday, Paul Kangas features a "guest market monitor" on his Nightly Business Report. The latest was George Muzea, president of Muzea Insider Consulting Services and an expert on following insider trends. Here are excerpts.

Paul Kangas: Your specialty is tracking what corporate insiders are doing with respect to their company stock, buying or selling. Give us an update on any clear-cut trends going on right now.

George Muzea: Well, insiders are relatively neutral. They're not selling at record levels; the selling is quite normal. What's a little disturbing to me is lack of insider buying, particularly when we broke the 10,000 area where they didn't step up. That suggests to me that in the next couple quarters, there will be more companies disappointing than Wall Street is prepared for.

Kangas: On your last visit with us in early March, you were rather negative on the market and that was the beginning of a significant downtrend and that was tipped off to you by lack of insider buys.

Muzea: That's right and I thought also at that time we would have a bottom possibly in the fourth quarter, which is working out too. But yes, insiders have, are really good clues that tops and bottoms, particularly if it's contrary to what the public is doing.

Kangas: What`s more compelling, a buy by an insider or a sell by an insider?

Muzea: I think buying is more important because there's so many more reasons why insiders sell. They have a tendency to sell their stocks as they rise and for many different reasons, unlike insider buying which has only one reason, they think it is going to go up over the next two quarters.

Kangas: Does the amount of buying or selling matter?

Muzea: Yes. If they're selling small pieces, like 10% or less, then it`s actually a positive development. So the only time you really want to concern yourself with insiders selling is after the stock has rolled over and is sliding down. They should be buying as the price drops, so when they diverge from normal behavior and sell, I advise clients to sell or short these stocks.

Kangas: Let`s have a look at your first stock recommendation, which is ValueVision (VVTV NASDAQ).

Muzea: This is a stock that is building a technical base. There is insider buying and one of the insiders is quite smart. We like to see a cluster of insiders buy when the stock is building a base after a long decline. This is a company involved with television home shopping, among other things.

Kangas: Let's move along to the second,  HRPT Properties (HRP NYSE).

Muzea: This is a commercial real estate trust company, and we like the fact that the stock was lower and now it`s higher and a smart insider paid up for the stock. This is one of my best insider patterns that I describe in my book. The stock has a yield of 7.5%, so the fact that he bought indicates to me that there`s a good possibility that the dividend`s going to be very secure.

Kangas: All right. How about the third one?

Muzea: The third one is Trimeris (TRMS NASDAQ), which is a biotech company. This is another beaten-down stock. There is a smart buyer picking up some shares. Again, you have to be patient with these types of stocks, but I think there`s a lot less risk buying a company like this than something that`s hitting new highs today fueled by momentum investors who have no other interest other than the fact that the stock is going up.

Kangas: OK, three on the buy side. You don`t own any of them.

Muzea: No I don't, but I follow them pretty closely.

Kangas: How about on the sell side?

Muzea: On the sell side, I'm a little concerned with the insider trading pattern in Cott Corp. (COT NYSE). This is a beverage company. As you know, we don't follow the fundamentals of the companies; we just look at insider trading which is what I am paid to do. But I don't like the fact insiders sold at $33 and then the stock came down to $24. It's rallied back to 26, and they're selling again. I don`t like that particular pattern. It's my favorite short pattern that has worked well for me over the years.

Kangas: Thanks, George."

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