INDUSTRY INSIDERS LOADING UP ON CHEAP COMPANY STOCK

A surge of telecom executives and directors purchasing their own companies' stock in the last two months points toward a renewed optimism in the beleaguered sector, say some observers, who view the rash of insider buying as a vote of confidence from management.

Airgate PCS, Charter Communications, Cox Communications, Crown Castle International, Nextel Communications and Nortel Networks all have seen infusions of insider investment this summer, echoing trends in both the telecom industry and the national economy.

“Across the board, you're seeing insiders at quality companies buying in at these prices,” said Hasan Iman, analyst with Thomas Weisel Partners.

According to Thomson Financial, the sell/buy ratio for insiders at telecom equipment vendors sank to 1.40 and 1.79 in June and July, respectively, after having stayed above 5 all year. The sell/buy ratio, the standard metric for tracking insider trading, compares the value of stock sold by insiders to the value of stock purchased. A value of 2.25 is considered “neutral.” Anything lower is considered a positive indicator.

“If you see the ratio getting better, it's usually a good sign for the industry,” said Lon Gerber, Thomson Financial's director of insider research. “Usually executives are one to two quarters ahead of the stock.”

Insider purchase amounts in both May and June for Thomson's “telephone utilities” category — which includes service providers but excludes cable operators — were about two and a half times as large as sale amounts, by far the most favorable ratio for the category in the past 12 months. To investors, said Gerber, that's a compelling statement.

“You like to see management believe in the story themselves and let their money do the talking,” said Dan Geiman, an analyst with McAdams Wright Ragen. “It's certainly a good sign.”

Geiman tracks Nextel Communications, whose chairman, William Conway, joined Director Frank Drendel and Executive Vice President Barry West in buying several thousand shares of the company in June. The stock price roughly doubled the next month after an impressive earnings report.

As with many companies, a spokesperson for Nextel said its inside investors wouldn't comment on their purchases, insisting that their actions “speak for themselves.”

However, insider buying by itself typically isn't enough to win over outside investors, especially under current conditions. Nortel saw a flurry of insider buying in June when it closed a public offering of 632.5 million shares — more than 1.8 million of which went to insiders — but the stock lost roughly a third of its value the following month.

“There are issues particular to Nortel that are more worrisome to investors that are not offset by positive indications of insider buying,” said Imam. “By and large, the biggest [investors] use that only as one indicator, and many of those other indicators are not showing anything positive any time soon.”

Some insiders could be simply dollar-cost averaging to alleviate the risk from stocks purchased previously at higher prices. And some could be buying the stock at a discount, which diminishes the weight of their purchases as an indicator. Insider buying, however, generally illustrates long-term confidence in a company, said Imam, who rates Nortel a long-term buy.

As for some of the large insider buying sprees of late, said Imam, “Maybe they know something we don't.”

SKIN IN THE GAME

Recent insider stock purchases

Date	Executive	Shares
6/27/02	Paul Allen , chairman Charter Communications	5,000,000 @ $4.00*
5/13/02	John Stanton , CEO Western Wireless	2,220,000 @ $3.78
5/21/02		800,000 @ $3.82
6/12/02	Ronald Wilson, director Nortel Networks	1,000,000* @ $1.72
5/7/02	William Conway, chairman Nextel Communications	100,000 @ $4.77
6/6/02		100,000 @ $3.96
8/2/02		100,000 @ $5.26
6/6/02	James Kennedy , director Cox Communications	39,000* @ $30.31
*Estimated