As their share prices have gotten pummeled over the Bernanke â€śtaper scare,â€ť Iâ€™ve become increasingly bullish on REITs.Â As Iâ€™ve written in recent weeks here on TraderPlanet, I believe this is an excellent time to accumulate shares of high-quality â€śbuy and forgetâ€ť triple-net equity REITs.Â But I also think itâ€™s an excellent time to take a position in their more speculative cousin, mortgage REITs.Â
Iâ€™m not alone on this view.Â The company insiders would appear to agree.
A companyâ€™s management and directors can sell their companyâ€™s stock for any number of reasons.Â Perhaps they executed stock options or want to diversify their portfolioâ€¦or maybe their kidsâ€™ college tuition bill came due.Â Unless the selling is widespread among several insiders, itâ€™s hard to draw firm conclusions about insider selling.Â
Insider buying is a very different story, however.Â There is only one reason why a company insider would by their own stock on the open market: they consider it undervalued and consider it a good investment.Â
Trading on material non-public information is illegal, of course.Â But there is nothing illegal about a company director using their knowledge of the business and their feelings about its prospects to make an informed purchase.Â And by following their SEC filings, we can do the same.
Iâ€™ll start with American Realty Capital Properties (ARCP), a triple-net retail REIT I hold in my Dividend Growth Portfolio.Â In the month of August alone, six company officers bought nearly $3 million in stock between them.Â Their average price?Â $13.73.Â At todayâ€™s prices, you can pick of ARCPâ€™s shares for less than what the insiders paid and enjoy a solid 6.7% dividend yield.
Letâ€™s also take a look at the recent insider trading activity at Annaly Capital (NLY), the largest and most popular mortgage REIT. Chairman and CEO Wellington Denahan-Norris spent $2 million of her own money buying shares in August.Â Three other company officers made significant purchases in the month of August as well.Â
The usual caveats apply here.Â You should always do your own research and you should never blindly follow another investorâ€”even a company insider.Â But watching the trading moves of company insiders can provide useful insight when youâ€™re contemplating a contrarian value trade.
Disclosures: Sizemore Capital is long ARCP.