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The #1 Insider Signal Every Trader Should Know

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We love it when a famous CEO buys a large chunk of his own company’s stock.

In Jan 2022, Reed Hastings, the founder and then Co-CEO of Netflix, bought 51,440 shares for nearly $20 million even though he already owned over 5 million shares.

This was his first open market purchase of Netflix shares ever. He didn’t even buy during the dark times of the financial crisis.

This big purchase made headlines and was analyzed on Twitter and Stocktwits by stock investors.

Insiders Buying En Masse

But what about when non-famous insiders buy their company’s stock and when a bunch of them buy en masse?

This mass insider buying behavior is called a “cluster buy” and it is the strongest signal you can get in insider trading.

When one insider buys, he might be considered an optimist, especially when he’s the CEO. But when four or five insiders all buy at the same time?

Now that’s a powerful consensus.

But you’re not going to hear about the cluster buys from the media. There aren’t going to be headlines trumpeting the buys of a few corporate Directors and a CFO.

Nope. The cluster buy simply isn’t glamorous enough.

Investors, therefore, have to dig below the surface to find the insider cluster buys. But once you do, that’s where big rewards can be found.

Cluster Buying Sends the Strongest Signal

Why do insiders spend so much of their own money on their company’s stock when they already own a ton of shares already?

Greed!

Pure and simple.

The opportunity to make more money motivates people - even people who are already well off, like highly paid CEOs and CFOs.

When insiders buy in a cluster, it’s because they all know something very good is going on at the company. Maybe it is a new product. Or contract. Or pending merger. Whatever the reason, they are all very confident that shares will be on the rise.

After all, who would buy more stock in a company if they knew it was sinking?  And why would several of them be buying unless they didn’t collectively believe that their stock was a value?

When things at the company are THAT good, insiders don’t want to miss out when everyone else is cashing in. Call it insider peer pressure, if you will.

Continued . . .

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Buy These Insider Stocks Monday

When in-the-know officers dip into their own pockets to buy shares of their own company, there’s only one reason: They expect the stock price to go up.

Because of their inside knowledge of anticipated contracts, mergers, product breakthroughs and the like, insiders must report their trades to the SEC within 48 hours. Zacks has zeroed in on the best of these buys. (That’s how, even during bearish 2022, we closed 11 substantial double-digit gains in a matter of weeks.¹)

Our recommended insider buys are time-sensitive and normally closed to public view – but you can still see them until midnight Sunday, February 26.

Catch our selected insider trades right now >>


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Real Life Cluster Buying

Shares of the oil producers crashed in the coronavirus sell-off in 2020 as oil prices plunged globally.

They remained depressed over the summer of 2020 and into the fall, even as crude prices rose back above $40 a barrel.

The insiders at explorer Matador Resources saw an opportunity with their shares still in the single digits.

In Nov 2020, 6 insiders, including the CEO, the COO of Operations and 4 directors, dove in to buy again with 5 buying even before Pfizer’s big Nov 9, 2020 announcement that its vaccine was over 90% effective against the coronavirus.

Pfizer’s announcement, and subsequent roll-out of its vaccine, lit a fire under the beaten down oil stocks. Energy was the best performing S&P 500 sector in both 2021 and 2022, as the economic reopening after the pandemic and then the Ukraine War, caused a spike in crude prices to new multi-year highs.

Shares of Matador have jumped over 390% since Dec 1, 2020.

What did they know?

Buy When the Insiders Buy

When high level insiders buy, they are required to report the purchases to the SEC within 48 hours of the trade. The trade then becomes public information.

Hedge funds and other professional investors routinely use this information to get an edge on their trades.

For most of us though, it’s not easy to get access to that insider information.

While the media will tout the huge insider buys from celebrity CEOs like Reed Hastings’ Jan 2022 $20 million Netflix share purchase, you’ll almost never hear about the non-celebrity CEOs, or other top ranked officers when they buy their stocks.

Was anyone talking about the 2020 Matador cluster buy?

The challenge is getting easy and reliable access to all the insider trades and then figuring out which ones to buy.

Where to Find the Cluster Buys

Anyone can go on the SEC website and get the insider trading information, but it’s time consuming to search by individual companies.

Some investment firms collect the insider buying data and can provide it to you as a daily list. Have you ever seen one of those lists?  The sheer number of companies can be overwhelming.

And still, those lists don’t usually separate out the cluster buys, which sometimes take place on different days in the same week.

For example, if you’re getting daily insider updates, you may not realize that though the CEO bought on Monday, three directors also bought on Tuesday. You may pass by those ‘hidden’ cluster buys without even realizing it.

Even if you got a list of the cluster buyers, how would you narrow it down to the stocks that are truly worth buying? If I’m going to buy when the insiders are buying, I want to buy only their top picks.

Today’s Hottest Insider Buys

Our Zacks research team has developed a unique strategy to identify only those top picks insiders are scooping up.

We monitor selected insider buying activity at companies with strong earnings and valuations. Then we analyze: 

• Who's buying? How much money are they putting in?

• When, if ever, have they bought shares in the past?

• Do they receive shares as part of their compensation, but still want more?

• Are we seeing "Cluster Buys"?

At the moment, fewer than 10 stocks meet the demanding criteria of our Insider Trader portfolio >>

I invite you to look into this portfolio now. Normally closed to the public, it’s now open – but only through the weekend. And it’s in high demand.

Even during bearish 2022, we closed 11 double-digit gains, like +19.5%, +22.9%, +32.8%, and +56.9% in a matter of weeks.¹

Bonus: Just for exploring our insider picks, you can download Zacks' Special Report, 5 Stocks Set to Double, free of charge. These 5 buy-and-holds balance our more active Insider Trader. Each is the #1 favorite of a Zacks expert for its potential to jump +100% or more over the next year.

Important note: Access to the Insider Trader portfolio and Special Report is limited. This opportunity ends at midnight Sunday, February 26. Sorry, there will be no extensions.

See our insider trades and download 5 Stocks Set to Double now >>

Tracey Ryniec

Tracey Ryniec, Zacks' insider and value strategist, is Editor in Charge of the Insider Trader.

¹ The results listed above are not (or may not be) representative of the performance of all selections made by Zacks Investment Research's newsletter editors and may represent the partial close of a position.


 

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