Bargain Prices Don't Tempt Insiders at the Apparel Retailers - TheStreet

Bargain Prices Don't Tempt Insiders at the Apparel Retailers

Despite relatively good news in the sector, execs appear hesitant about acquiring more shares.
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To judge from our mail, reader interest in the goings-on at the apparel retailers remains high. Whether this is despite the general malaise in the group, or actually because of it, isn't clear. Either way, there seems little harm in taking another look at the group -- though this time, in expectation of finding some evidence of insider bargain-hunting.

Back in July, when

we introduced the notion that retail insiders had taken a turn for the bearish, our hunch was that they sensed the beginnings of a landing -- whether soft or otherwise. Readers were quick to offer a compelling alternative explanation: The selling insiders reacted out of fear that their livelihoods were being threatened by e-commerce. Both were good ideas, but neither, as it turns out, was exactly on target.

True, the

Fed

has done its best to apply the brakes. Nonetheless, the holiday season was robust. Consumer demand and confidence have remained relatively intact and, by-and-large, bricks-and-mortar sales and revenue numbers have remained strong. Curiously, though, the retail apparel index, at one point up nearly 40% in the year-to-date, hit a wall in July 1999. The group recovered slightly heading into the year-end, but has yet to regain its mid-1999 levels. With the exception of

Wilsons The Leather Experts

(WLSN)

, the stocks singled out for insider selling back in July have faired even worse.

Even so, with the exception of women's specialty retailer

Deb Shops

(DEBS)

, where four insiders exercised options to acquire 80,000 shares from late December through late January, retail-apparel insiders have simply not taken the bait. This includes those at the cutting edge, youth-oriented retailers increasingly heralded as values. And as we pointed out last July, this is a group that has sent reliable, positive signals in the past: Both

Pacific Sunwear of California

(PSUN)

and

American Eagle Outfitters

(AEOS)

, for example, experienced strong runs in recent years after insiders acquired shares.

Curiously, apparel retailers have not only resisted the urge to buy, but in some cases -- including some of those covered back in July -- their sales persisted even after the stocks turned south. For example, American Eagle Outfitters struck an intraday high of 58.50 on Oct. 8 -- but company insiders continued selling through the end of the year, including more than 198,000 shares in December at prices as low as 43.

Ditto for Pacific Sunwear, whose insiders were not among the heavy midyear sellers. At that company, the sales accelerated into year-end. From Nov. 17 through Jan.13, four company insiders sold or made known their intentions to sell a combined 141,734 shares at prices ranging from 28.63 to 35 per share. Granted, until January, Pacific Sunwear was a strong performer. Still, just as with American Eagle, insiders filed their most recent intentions to sell

after

the stock topped out in December at more than 36.

Neither company was willing to comment on the activity. More than anything, the transactions are offered here for illustrative purposes. Contrary to what you might have heard, there is value in reading the insiders not only on a company basis, but also at the industry or even the sector level. Back in July, the signals sent by insiders in apparel retail stood in stark contrast to the sentiment expressed for the group on Wall Street. Then, many envisioned clear sailing for apparel retailers -- at the very least, for the industry leaders among them. After a tough six months (for the stocks, if not the companies), some are recommending the stocks on the basis of valuation as well as growth.

As always, you've got to be careful when working the data mines. Set out to find something -- no matter how unlikely the quest or no matter how objective you try to be -- and you'll almost always find it. It was with this in mind that we set off in search of insiders buying the apparel retailers. As it turns out, the warning wasn't necessary after all.

Bob Gabele has been tracking and analyzing insider trading since 1978, most recently for First Call/Thomson Financial. This column is not meant as investment advice; it is instead meant to provide insight into the methods of insider trading. At time of publication, Gabele held no position in any of the companies discussed in this column, although holdings can change at any time. Under no circumstances does the information in this column represent a recommendation to buy or sell stocks. Gabele appreciates your feedback at

rgabele@thestreet.com.