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We love it when a famous CEO buys a large chunk of their company's stock. In 2013, Elon Musk, the CEO of Tesla, bought over a million shares of Tesla stock for $100 million even though he already had plenty of shares. In June and Oct 2018, he was at it again with another two purchases totaling $35 million in shares. As recently as Feb 2020, just before the Coronavirus Crisis hit the United States, he bought another $10 million at $767. All of these purchases made headlines. When Elon Musk bought in 2013 and 2018, he was the only insider at Tesla buying at that time. In Feb 2020, Oracle Executive Chairman, and a Tesla director, Larry Ellison, also bought shares. But he was a rare second insider to buy at Tesla in the last few years. 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, they might be considered an optimist, especially when they're 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 money on their own companies' stock when they already own a ton of shares? 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 there be several of them 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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| Real Life Cluster Buying Shares of the energy E&Ps crashed in the coronavirus sell-off 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 energy stocks. Shares of Matador have rallied over 170% 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 insider information. While the media will tout the huge insider buys from celebrity CEOs like Elon Musk's Feb 2020 $10 million purchase, you'll rarely 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 insider trading information, but it's time-consuming to search by individual companies. Some investment firms collect 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 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 the CEO bought on Monday but three directors 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. Insider Buying You Don't Want to Miss 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 the demanding criteria of our Insider Trader portfolio. We invite you to look into the portfolio now. You'll see live recommendations, including a major buy at a leading global beauty company. After a recent pullback, 2 insiders scooped up more than $1.5 million worth of shares. Neither had purchased shares on the open market in over a decade. Clearly, this opportunity was too good for them to pass up. You can still buy this stock at a discount, but that likely won't last much longer. As a bonus for exploring this and our other 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 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 Sunday, May 30. See our insider trades and download 5 Stocks Set to Double now »Good Investing,
Tracey Ryniec, Zacks' insider and value strategist, is Editor in Charge of the Insider Trader portfolio. | ||||
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