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Barratt (BDEV,  80.25p) directors have been actively buying into the group since November, initiating or significantly increasing their personal holdings as follows (Source: London Stock Exchange):

  • November 18th Robert Lawson, Non exec Chairman, bought 151,000 shares at 65.3p, and now holds the same amount.
  • November 20th Mark Rolfe, Non exec director, bought 30,000 shares at 62p, and now holds the same amount.
  • December 19th Mark Clare, CEO, bought 357,000 at 69p, taking his holding to 529,000 shares.
  • December 19th Mark Pain, CFO,  bought 60,000 at 74.8p, taking his holding to 100,000 shares.
  • December 23rd Stephen Boyes, Executive Director, bought 65,000 shares at 76.4p, taking his position to 107,000 shares.

Between them these directors have invested GBP 450k, at a time of  great uncertainty in both the stock and property markets.

Barratt have however impressed the market with recent results, showing an impressive ability to generate cash and pay down debt, as well as reduce costs by shedding 60% of their employees.

The group today warned of margins being squeezed, and therefore unlikely to meet brokers estimates [ which is probably near term and pretty irrelevant to the long term viability of this business] (FT article).

What matters with this group is that directors are actively buying, and they appear to be managing the economic problems quickly and positively.

On November 8th 2007 (‘Housebuilders- too early to buy’), with Barratt above 500p, we warned of downside in the sector as a result of seeing significant directors share sales at Savills. I’m happy now to be looking for opportunities to invest in Barratt for the longer term below 75p.

View on Barratt Developments: Positive

Strength of signal: Strong (caveat: must be viewed long term ).

barratthomes

Have a look at this article in todays FT. Sometimes director buying activity signals a market turn. I don’t have the data to prove it, but it is one of many indicators that could support a change in direction for stock markets.

‘Senior US company executives bought more shares than they sold last month for the first time in 13 years’……………. see FT article

I look also at directors buying activity by sector. I made what was a controversial call at the time, on the back of directors buying activity in the Real Estate sector (see entry of November 25th). Since then the sector is up 10%, and the FT All Share index down 2%, so a relative outperformance of 12%.

Since January 17th, when I highlighted directors buying outpacing selling, we have seen the Travel and Leisure sector outperforming the All Share by 7%, and the Construction and Materials sector by 2%. Early days I feel for these two.

When I looked at Director share activity in the Real Estate back in early January, I found that buys outnumbered sells by 4:1 (source digitallook. using net director activity over 1 month. cut off £50k).

I find on my return from holiday that this has now accelerated to 10 buys vs 0 sells. Admittedly these are smaller caps such as Warner (WNER), Big Yellow (BYG), and Hansteen (HSTN). However I strongly believe that this behaviour reinforces our earlier call to buy the sector (November 25th- Real Estate Sector- directors are buying).

I’ve also been looking recently at reversals of director dealing activity by sector. To do this I look at the Directors net dealings over one year, and compare that data with the net activity over one month.

This throws up two sectors of interest, Travel, and Construction and Materials. In the Construction and Materials sector, stocks where we have seen significant director sales in the last twelve months more recently countered by buying activity over the last month, include Carillion (CLLN), Keller (KLR), and Rok (ROK).

In the Travel sector stocks that show a reversal from net selling to net buying are Clapham House, Partygaming, Restaurant Group and Prezzo.

Clearly both these sectors are highly exposed to Interest rates and Consumer sentiment. Opportunities present themselves in the stock market when investor sentiment is one sided. Any change in sentiment results in significant share price changes, as we are starting to see in the Real Estate Sector.

(Real estate sector stocks showing director buying activity over the last month are Sovereign SVN, Warner WNER, Rugby RES, Big Yellow BYG, Naya Bharat NBPC, DTZ DTZ, Hansteen HSTN, Quinlam QED, Real Estate Opportunities REO, Dolphin Capital DCI)

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