Several top CEOs are putting their money where their mouth is and purchasing shares of their own companies’ stock. The move shows confidence in the company, and in many cases, can cause share prices to jump significantly.
While many CEOs and executives have stock options built into their contracts that allow them to automatically purchase stock at a discounted price, these CEOs are buying stock on the open market, just like any other investor.
16 CEOs Buying Stocks
In 2016, 16 CEOs from companies on the Standard & Poor’s 500 purchased stocks from their own companies. Leading the pack was Stefano Pessina, CEO of Walgreens Boots Alliance, who spent $162.8 million on shares of his own company in 2016, accounting for more than 99% of the total amount spent by all CEOs.
Another big buyer was JPMorganChase CEO Jamie Dimon, who purchased $26.6 million in stock in his company in February. Of all the CEOs, the majority are from the financial sector, representing six of the 16 companies. This could possibly be because financial industry stocks were hammered last year and down more overall than the rest of the market. That didn’t stop CEOs from stepping in with their wallets open.
Shares of Legg Mason were down 30% for the year, but CEO Joseph Sullivan still purchased 25,000 shares for a total of approximately $745,000 in January 2016. Financial product and loan company Navient has seen its shares fall 13% in 2016, but CEO John Remondi bought 80,000 shares in February for a total of $700,000.
Other notable CEOs include Michael Corbat of Citigroup, Stephen Luczo of Seagate Technology, and Steve Wynn of Wynn Resorts.
A CEO choosing to purchase stock of his or her own company can be a sign of good will and confidence in the company, but it often goes beyond that—it can also have a large financial impact on the stocks, especially if prices are already below where the CEO believes they should be.
After Dimon purchased stocks of JPMorganChase, the shares jumped 9%, making them one of the largest stock market wealth generators. Wynn purchased nearly $47 million of his hotel and casino chain in January and February when he thought the stock was undervalued; the shares increased 46% by the end of the year.
However, a CEO purchasing stock doesn’t automatically mean the shares will perform well. On average, shares of the companies that had their own CEOs buying stock were down 15% in 2016, compared to the S&P 500 being down 6% as a whole. There have been many instances of executives buying stocks that dropped or even tanked soon thereafter.
It isn’t all bad, though. A CEO purchasing shares could be a good sign for things to come. Of the 16 companies purchased this year, 12 are now rated at “buy” or “outperform” by market analysts, meaning they are predicting the stock will be higher in 18 months than its current price.
Stock Purchases Down
Although 16 CEOs purchased stocks in 2016, the number was down from previous years. There are a number of possible reasons for the change, including the fact that U.S. stock prices grew increasingly expensive throughout the year.
There’s also the fact that many CEOs don’t need to purchase stocks with their own money because they get some as part of their employment contract. As Ian Levin, an expert on executive compensation, said, “If you work at a butcher and a significant benefit of the job is that you get to take home several steaks every week, why would you want to buy more steak?”
Because most CEOs already own shares of their own company, they are often advised by their wealth management advisor to diversify their portfolio with shares of other companies, which could cause a CEO, even one who is interested in purchasing his or her own stock, to purchase something different.
Should you buy stock just because the CEO does? Not necessarily. But watching what insiders and executives do can give you a look into potentially undervalued stocks that are on their way up and which companies have CEOs that want to publicly show their support.