Insider buying is a good way to gauge which stocks could be on the cusp of taking off. Here are three with heavy buying today.
The markets have been so great the last couple of years that many insiders—the executives and board members of companies—have been busy cashing in some of their shares at the higher prices. And while the insider sell/buy ratio is still fairly high, there are some sectors that are seeing an increase in insider buying.
According to research firm Fintel, the total market insider sell/buy ratio in January was at its highest level since 2017, and is now close to 3.6, which means there are 3.6 sellers for every buyer. And that has risen dramatically from its bottom of 0.9 in June of 2020.
The most bullish sector is Financials, with an insider sell/buy ratio of 1.28. But that has also risen from 0.97 in December.
Consumer Discretionary, Industrials and Information Technology are the most bearish stock market sectors, with sell/buy ratios of 5.57, 6.38, and 14.86, respectively.
But, as I’ve been known to say recently, I believe we are in a stock picker’s market, so selecting stocks using the old dart board is not going to work right now. And that’s evident with insider buying/selling also.
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Here’s a list of the Top 10 companies with the most insider buys last week:
|SAII||Software Acquisition Group Inc.||658,485||11.49||7,565,992||Other|
|FSRXU||Finserv Acquisition Corp.||800,000||10.00||8,000,000||Finserv Holdings|
|CFVI||Cf Acquisition Corp.||700,000||10.00||7,000,000||CEO|
|FSII||Fs Development Corp.||602,500||10.00||6,025,000||President & CEO|
|AUUD||Auddia Inc.||969,697||4.12||4,000,000||Executive Chairman|
|MTEM||Molecular Templates, Inc.||75,000||11.48||860,850||10% Owner|
|AAT||American Assets Trust, Inc.||2,468||30.26||74,681||Chairman, CEO & President|
|57,151||29.52||1,687,097||Chairman, CEO & President|
|58,379||29.44||1,718,677||Chairman, CEO & President|
|IBAL||International Baler Corp||2,633,896||1.20||3,160,675||10% Owner|
|SNSE||Sensei Biotherapeutics, Inc.||11,786||19.77||233,009||Director|
|OPK||Opko Health, Inc.||500,000||4.76||2,380,000||10% Owner|
Most of the above companies are asset acquisition, technology or biotech companies—which bodes pretty well for those sectors.
But the numbers alone don’t always give you a complete picture; they are just the beginning of our quest to determine the importance of these purchases.
How to know when Insider Buying is Important
There are a variety of catalysts that prompt insider buying – actions that might spell opportunity for investors to also load up on shares of some of these companies. They include:
- A direct correlation between increased insider trading—the legal kind—and directional market shifts. Research has shown that when lots of folks who are “in the know” start stockpiling their company shares, there’s a good chance that they have reason to believe that the broad markets are gaining ground. They are in position to see positive signals such as growing backlogs, declining inventories, supply shortages, etc. And vice-versa. When these people start fire-selling their shares, you may want to rethink your overall market strategies to prepare for a possible market drop.
- Conditions of employment. When they hire on CEOs, CFOs and other executives, top insiders often are required to buy shares. What’s important to note is when they make big and unusual purchases, adding significant holdings of their company stock—especially when they are market, and not options, transactions.
- Buying by non-execs. What may also be valuable to you is watching what other company insiders—such as line supervisors or employees with direct product production responsibilities—are buying. These folks generally have the pulse of their company’s fortunes; they see demand and supply up close. So, if they start buying big chunks of stock, it may be important.
Not All Insider Buying is a Big Deal
There have been plenty of cases when companies or individual executives have announced they are making big share purchases. Sometimes, those announcements are pure hype. So, make sure you check reliable sources to see if the purchases have actually been made. (More on that in a moment).
Option exercising is always interesting. I marvel at just how generous some of these programs are. A lot of them are fabulous perks for the executives—giving them the ability to buy shares at rock-bottom prices, and then when the shares rise, these insiders can really clean up. But that kind of insider buying is generally business as usual, and doesn’t tell us much about a company’s prospects.
Some Extra Tips
Here are a few more ideas on following insider buying:
- Identify the purchaser. Certainly, the C-suite officers should be cognizant of what’s going on with their company. Not so much the directors. Consequently, I don’t pay a lot of attention to what the directors are buying and selling.
- Watch for good-sized buys from several insiders—not just one or two. The more, the better.
- Insider buying in smaller companies is usually more telling. Generally, insiders will own a pretty good portion of company stock at small- and mid-sized businesses. For instance, utility companies and conglomerates often have less than 5% insider ownership. So, any exec making purchases would have to buy a whole lot of stock for the market to notice it. However, if a small regional bank suddenly has several insiders buying big blocks of shares, that may be very meaningful. Perhaps a sale of the company is in the offing, or grand expansion plans are around the corner. But please know that because of strict SEC rules regarding insider trading, you most likely won’t see immediate action following large purchases. It may take a while for any upcoming event to occur that would make the stock price rise.
Sources for Investigating Insider Buying
The SEC requires several forms from insiders, including Forms 3, 4, 5, and 144. You can access the information from these filings at any number of websites, but my favorite is:
Finance.yahoo.com – Just type in your stock symbol, look across the top menu, and you can click on Holders to find out which insiders are buying or selling, the size of the transactions, and how many shares each one currently holds.
You can also find insider trades at nasdaq.com. On the left side menu, you can click on Insider Activity.
Many of our contributors to Wall Street’s Digest use insider buys as one of their screens in determining if a stock is buy-worthy. In most cases, it’s just one characteristic that can influence a recommendation—not the primary or sole reason for buying. In any good analysis, it’s important to look at the whole picture—not just one parameter. But if you see a lot of insiders rushing into the shares, it will most likely be worth your while to delve a little deeper to see if the company meets your investment strategies and goals.
Recently, I noticed that three companies that have been recommended in my Wall Street’s Best newsletters have hit the lists of insiders making significant purchases:
3 Stocks with Insider Buying
American Shared Hospital Services (AMS) was recommended by William Velmer, of S.A. Advisory. He noted, “AMS provides turnkey technology solutions for advanced radio surgical and radiation therapy services. AMS is a world leader in providing Gamma knife radiosurgery equipment , a non-invasive treatment for malignant and benign brain tumors, vascular malformations, and trigeminal neuralgia (facial pain). The company also offers proton therapy, and the latest IGRT, IMRT and MR/LINAC systems. Insiders own 40% of the shares. The company has buyout potential as a result of consolidation of the industrial segment.
“AMS is a cheap stock and could easily be worth 2-3X the current share price.”
Jefferies Financial Group Inc. (JEF) was contributed by Gavin Graham, in Gordon Pape’s Internet Wealth Builder. Gavin’s take: “Jefferies (formerly Leucadia) is the largest independent mid-market investment bank in the U.S., with major positions in equities, convertibles, and corporate debt. It also owns Berkadia, a commercial mortgage joint venture with Berkshire Hathaway. Other assets include wealth management businesses, real estate company HomeFed, foreign exchange dealer FXCM, and Linkem, an Italian wireless telephone business with over 500,000 customers.
“For the 2020 fourth quarter (to Nov. 30), Jefferies recorded record revenues of $1.6 billion. Operating income was a record $406 million, and net earnings of $307 million ($1.11 per share) also set a record. Jefferies raised its quarterly dividend by 33% to $0.20 per share. The company also repurchased 42.1 million shares for $813 million, equivalent to a price of $19.29 a share.
“Jefferies is a Buy. The shares are selling at a 32% discount to its book value of $37.65 a share and a 7% discount to its tangible book value.”
MDU Resources Group, Inc. (MDU) was chosen by Richard Moroney of Dow Theory Forecasts. Richard noted, “MDU Resources scores in the top 30% of our research universe for returns on assets, equity, and investment. Operating profit margins are also trending higher, the result of strong pricing and lower energy costs. MDU runs a construction business alongside its electric and natural-gas utilities. MDU looks positioned to get a boost from President Biden’s $2 trillion plan to invest in infrastructure and clean energy. MDU could especially benefit from projects involving airports, rail, electricity, or surface transportation, such as bridges.
“MDU has grown its dividend in 30 straight years, including a modest 2% increase in 2020. MDU is a Long-Term Buy.”
These companies may provide the starting point for your research into recommended companies with recent hefty insider purchases. Remember, one statistic alone does not make a winning stock. But seeing the “folks in the know” piling their money into their companies’ shares is a great beginning.
Nancy Zambell, Chief Analyst of the Financial Freedom Federation, has spent more than 30 years helping investors navigate the minefields of the financial industry. Nancy's book, Make Money Buying & Selling Stocks is an introduction for new investors and a reminder for experienced investors on how to profit in the stock market.Learn More