If corporate insiders are right, the basic materials sector should be in store for a prosperous new year.
Of the 10 major sectors on the TSX, basic materials - which includes base and precious metals miners and coal producers - has the most insider buying. INK Research’s indicator for the sector is at 336 per cent, up from 270 per cent in mid-October. A reading of 100 means an equal number of stocks with buyers as sellers, so the latest number implies that there are more than three times as many stocks with buying as there is selling.
Most of the buying is in high-risk junior exploration stocks, although more familiar producers Barrick Gold Corp. and Osisko Mining Corp. top the list of companies in the sector with key buying, said INK Research analysts Ted Dixon and Henry Chan in a research note.
Volatile resource stocks weren’t great performers last year. Instead, defensive sectors, such as consumer staples, provided the best returns. It’s possible that interest in low-volatility defensive investing is now on the wane, at least among corporate insiders - the executives and officers working within the actual businesses.
The INK Research analysts warm that counting on “high beta” outperformance this year is subject to a long list of risks, including the ongoing partisanship budgetary developments in Washington and unexpected bad news out of Europe.
Overall, Canadian insiders are starting off 2013 bullish, with INK’s indicator for the TSX currently at 156.3 per cent. That signifies Toronto’s main stock exchange may be undervalued from a broader perspective, too, with more than 1.5 stocks on the TSX with key insider buying for every one with selling.
INK’s “sentiment indicator” for sectors is derived by taking the number of stocks with buy-only transactions over the last 60 days, and dividing that with the number of sell-only transactions. (The indicator ignores stocks that have both buying and selling in an effort to give a more accurate reading).