American Express Insiders Buying Stock, What Does it Mean For Retail Investors?
NEW YORK (TheStreet) -- "Be greedy when others are fearful," an investment axiom coined by Warren Buffett is being applied by American Express (AXP) - Get Report insiders, who've been buying shares of the credit card company in recent weeks. That's a trend retail investors should closely watch.
With shares down more than 13% so far in 2015, American Express shares have gotten punished. As of Friday's close of $80.31, the New York-based company is the worst-performing component of the Dow Jones Industrial Averages (DJI) , which has traded flat on the year.
But if recent insider buys are any indication, American Express shares may not underperform much longer. Take a look at the table, courtesy ofNasdaq.
On Feb. 26, two American Express officers acquired a total of 58,426 shares of the company's stock. What stands out, however, is the buy order at regular market price by Jeffrey Campbell, the company's Chief Financial Officer, who bought 25,000 shares at regular market price of $83.21. This amounts to a little over $2 million.
What's more, this buy occurred a day prior to the Dow reaching a fresh new all-time high at 18,244.38 on Feb 25. This means American Express execs were bullish on its stock even as the market was making new highs, which is another strong signal.
There are tons of reasons insiders sell shares. But the only reason they buy is because they believe two things -- 1. The shares are cheap and 2. They expect the stock to rise higher over time and they'll make money it. In this case, both assumptions are tough to argue with. Take a look at the chart.
Aside from being the Dow's worst performing stock, American Express shares have significantly underperformed competing credit card issuers such as Visa (V) - Get Report and MasterCard (MA) - Get Report, whose shares are up on the year 3% and 5%, respectively.
What's more, purely from a valuation perspective, it's tough to ignore how discounted American Express shares are, compared not only with the rest of the market, but against both Visa and MasterCard.
With its trailing price-to-earnings ratio at 14, American Express stock carries a seven-point discount to the average P/E of S&P 500 companies. And its P/E is more than half of both Visa (P/E of 30) and MasterCard (P/E of 29), indicating that its 10% selloff from its high February high of $86.18 was overdone.
It's true that sentiment has fallen on American Express. Recent concerns about impacts from losing its exclusive relationship with Costco (COST) - Get Report and co-branding relationship with JetBlue (JBLU) - Get Report are valid. Likewise hurting shares is the the U.S. Justice Department ruling that the company violated antitrust laws in regards to merchants.
For the quarter ending March, earnings estimates are down 5% just in the past 30 days and 7% in the past two months. Still, that insiders are now buying the shares is an encouraging sign for retail investors to do the same and snap up a bargain, especially since all of the negativity has lowered the bar on expectations.
This article is commentary by an independent contributor. At the time of publication, the author held no positions in the stocks mentioned.