Sound bites: Insiders buying at Equitable Group, selling in Energy

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In the first part of my October 4th interview with Jim Goddard, I discuss the recent housing policy changes announced by Finance Minister Bill Morneau. The stock prices of smaller mortgage lenders have taken a big hit since the news, including INK Canadian Insider Index members Equitable Group (INK Edge outlook: mixed; EQB) and First National Financial (INK Edge outlook: mostly sunny; FN). We noted in our Wednesday Morning INK report that Equitable Group now has a mixed INK Edge outlook, which, if maintained, would push it out of our Index during the November rebalancing (at which point a constituent stock must have a mostly sunny or sunny outlook to remain). However, a director bought during Wednesday's plunge, suggesting that the stock still has a fighting chance to retain its index membership.

We have not seen any insider activity this week at First National, but that is no surprise given that they are set to report Q3 results on October 25th and a trading blackout may well be in place. We expect management will comment on the latest mortgage insurance rule changes at that time. We will look forward to hearing what First National management has to say as the Morneau rule changes are significant. Meanwhile, the foreign real estate buyer transaction tax introduced by the B.C. government this summer is at risk of being undone by loose Bank of Canada monetary policy. If Stephen Poloz tries and is successful at pushing the loonie down to the 65 cent level, the impact of the tax on foreign buyers will be wiped out.

In the second part of the interview, I report on how Canadian oil & gas insiders are continuing to sell exploration and production stocks as crude oil rallies towards $50 on the hope that OPEC will be able to cut production when it meets at the end of November. Indeed, since the interview, our INK Energy Indicator has continued to tumble and is now below the 100% level meaning there are more stocks with key insider selling than with buying.

 

However, as we mentioned in our weekly Market INK report on Monday, on the positive side, more oil and gas names are starting to appear on our screens. This suggests that opportunities, while limited in the sector, are growing at the stock level. On Monday we released our Energy Top 30 report which highlights the thirty Canadian Energy stocks that rank highest on our INK Edge V.I.P. criteria of valuations, insider commitment, and price momentum. The number of Energy stocks with a sunny outlook (in the top 10% of all stocks ranked) has risen to 12 compared to 9 last month. This modest increase reinforces the view that there is expanding opportunity for stock pickers with a one-year or longer time horizon, even if the prospects for the entire sector remain unexceptional.

Download or listen to the interview below, or you can find it on Howestreet.com. The daily Morning INK and weekly Market INK Reports are delivered directly to Canadian Insider Club members. The INK Energy Top 30 is available in PDF format at the Canadian Insider Store. For more information on all INK Research premium services, visit our website at INKResearch.com. INK outlook categories are designed to identify groups of stocks that have the potential to out- or under-perform the market. However, any individual stock could surprise on the up or downside. As such, outlook categories are not meant to be stock-specific recommendations.

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