Why Are Insiders Still Buying Their Own Stocks?
The insiders buy when they see more upside on the horizon. Pure and simple. Tracey does all the research to find that elusive edge that leads to higher returns for...
The coronavirus stock market sell-off in March 2020 happened so quickly, it was the fastest bear market in history.
But the rebound was just as quick.
The time to get in was so short, that even famed Value Investor Warren Buffett didn’t jump in and nab any stock deals during that time.
And as stocks climbed, and then climbed some more in 2021, many investors were paralyzed and sat on the sidelines.
After some stocks soared 200% or even 300%, how can you know which stocks still have gas left in the tank?
There’s a secret to being a fearless investor, even when stocks are at new highs.
You have to find an edge.
They Bought the Rally
While many investors were too scared to buy stocks on their highs, there was a group of investors who dove into some of these red-hot names anyway: the corporate insiders.
You know them. The directors, the head of R&D, the CFO, the general counsel, and others.
Many of them were STILL buying even after their stocks hit new all-time highs this year.
What would propel an insider to buy more shares, using their own cash, after the stock has had a huge rally?
Pure and simple.
The opportunity to make more money motivates people - even people who are already well off like highly-paid CEOs and directors.
Continued . . .
Insider Trade Alert: Get In Now
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.
Zacks is now targeting insider moves that include a massive “Cluster Buy” at an under-the-radar, under $10 financial small-cap. The CEO, CFO, and 8 Directors just paid more than $1.8 million to take advantage of what must be an exceptional opportunity. The stock had pulled back. Earnings estimates are soaring. It’s time to get in on this action.
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The Signal to Buy at the Highs
The insiders buy because they believe there is more upside.
They know what’s going on behind the scenes at the company and they know that business is good. Maybe it is a new product. Or contract. Or pending merger. Or their backlog is at record highs.
Or that those hot sales during the pandemic in 2020, continued into 2021 and are still remaining red hot heading into 2022.
Whatever the reason, these insiders were confident that the shares still had even further to rise, despite them being at new highs.
After all, who would buy more stock in a company if they knew it was sinking?
And why would you buy at the top if all the good news was already priced in?
When things at the company are THAT good, insiders don’t want to miss out. They want even more shares.
Real Life Insiders Buying in Red Hot Industries
The auto rental industry was initially a pandemic loser, as business travel dried up, and then leisure travel followed, which led to a collapse in the rental car market.
But by 2021, the leisure travel market, where people wanted to hit the open road, was coming back. And with it, so did the rental car business.
Avis Budget Group, one of the largest rental car companies in the United States, is forecast to grow revenue by 65.1% in 2021.
Initially, Avis Budget shares rallied off their Mar 30, 2020 coronavirus lows to gain 154% by the end of 2020.
But the shares continued to rally in the new year as rental car demand accelerated on the vaccine rollout.
Shares have soared 723% in 2021.
Diving in at the Highs
Yet the insiders dove in to buy even after the shares had rallied.
In Feb 2021, the Avis Budget CFO bought thousands of shares in two separate buys as the stock was breaking out and hitting new highs.
The first purchase was for $1.089 million and the second, just 6 days later, for $556,000.
He dove in TWICE.
Since the first buy on Feb 19, the shares are up another 535%.
But the insiders did not sit on the sidelines even as the shares continued to climb higher through the first half of the year.
On May 12, 2021, the Executive Chairman and Director, bought 63,000 shares for $5 million even though he had thousands of shares already.
What did he know?
Shares are up another 308.2% since his big May purchase.
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.
They buy when the insiders buy.
For most of us, though, it’s not easy to get access to insider information.
While the media will tout the huge insider buys from celebrity CEOs like Elon Musk, you’ll rarely hear about the non-celebrity CEOs, or other top-ranked officers when they buy their stocks.
Was anyone talking about the Avis Budget Executive Chairman’s big $5 million May 2021 purchase?
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 Best Insider Buys
Anyone can go on the SEC website and get the insider trading information, but it’s time-consuming to search by individual companies, especially now that they’ve revamped the SEC website and made it even less user-friendly.
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 those lists don’t usually separate the insiders who are buying at the highs.
Even if you got a list of the insiders who are getting in at the highs and those who are buying the deals, 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.
To identify the most promising signals, Zacks' research team developed a strategy that monitors selected insider buying activity at companies that already show strong earnings and valuations.
Today only 10 stocks meet our demanding criteria.
We invite you to look into our Insider Trader portfolio now.
Massive Cluster Buy Just Added
You'll find live recommendations, including an under-$10 financial small-cap that just about everyone in its board room is jumping on.
The CEO, CFO, and not 1 or 2 but 8 Directors just poured over $1.8 million from their own wallets to snap up hundreds of thousands of shares.
Obviously, they must have held a very interesting board meeting.
The good news is that you can still join the feeding frenzy at this company, but your opportunity won't last much longer.
Bonus: Just for exploring our insider stocks, you can download Zacks' Special Report, 5 Stocks Set to Double, free of charge. These 5 long-term buy-and-holds balance our more active Insider Trader moves. 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 midnight Sunday, November 28th.
See our insider trades and download 5 Stocks Set to Double now >>
Editor of Insider Trader
Tracey Ryniec, Zacks' insider and value strategist, is Editor in Charge of the Insider Trader portfolio.
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