Insider Data Bear Value Fruit

Many corporate executives and directors do not appear to have had a hunch that the fourth quarter would bring big gains in the market, as insider buying was as lackluster in October as it was in September. According to a Thomson Financial report, insiders purchased $101 million worth of their own stock each of the past two months, far short of the five-year monthly average of $160 million.

But there were pockets of activity and some recent buys have captured my eye, generating one value idea.

The stocks of battered financial and health care companies saw the most avid insider buying. Executives and directors of financial companies bought 17% more of their companies' shares in October than in September, according to Thomson, while insider selling fell by 39%. And insider buying of health care shares popped 116% over the previous month.

Also of note, insiders at smaller companies were much quicker to buy shares than insiders at medium-sized or larger companies. The Thomson data show that 82% of insider buying in October was in small-caps (vs. 73% historically), which was its highest share of the total in more than 12 months. Large-cap buying represented only 3% of all October insider decisions (vs. 10% historically), its lowest share of the year.

Technology execs were the most bearish in October, according to Thomson, with selling up 38% from September and tech buying down 39%. Large-cap insider selling in all sectors during October represented more than one-half of all disposals for the first time since January 1999, the financial research company said.