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We love it when a famous CEO buys a large chunk of his company's stock. In Jan 2022, Reed Hastings, the 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 money on their own 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 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 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. The rally continued into 2022 as energy prices spiked on the Ukraine War. Energy was the best performing S&P 500 sector in 2021 and 2022. From Dec 1, 2020 through Dec 30, 2022, shares of Matador surged 387%. Diving in Yet Again But 2023 brought yet further changes to market conditions, as crude and natural gas prices came back down off their Ukraine War highs. Shares of Matador fell 23.5% through Mar 17, 2023 and the insiders saw yet another buying opportunity. A cluster of 5 insiders bought shares this spring, including the CEO, 2 directors, the EVP of Reservoir Engineering and the President-Operations. Since March, WTI has again re-taken $80 a barrel and Matador has reported record energy production. Shares have been up over 50%, but are currently up 15% from March lows. 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 the insider information. While the media will tout the huge insider buys from celebrity CEO's like Reed Hastings' Jan 2022 $20 million Netflix share purchase, you'll almost never hear about the non-celebrity CEO's, or other top ranked officers when they buy their stocks. Was anyone talking about the 2023 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 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. Today's Hottest Insider Buys To distill 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 a small selection of stocks meet the demanding criteria of our Insider Trader portfolio. Like one Zacks Rank #1 Strong Buy that has been neglected by Wall Street, but now merits immediate attention. Not 1 or 2 or 3, but 4 of the company's directors just snapped up shares – even though they already owned plenty of them. Go ahead and look inside the portfolio now to see all our insider buys with substantial upside. But that's not all. You'll also get full 30-day, real-time access to ALL Zacks' private buys & sells as part of our celebrated Zacks Ultimate arrangement. Don't miss your chance to follow our real-time moves from ready-to-fly stocks under $10, to professional options trades ... from surging tech buys, to long-term value stocks ... and from home run investments, to income recommendations In fact, Zacks Ultimate closed 118 double- and triple-digit gains so far this year. Previous gains reached as high as +190.3%, +231.0%, and even +1,007.1%.¹ Your cost for all this is only $1, and there's not 1 cent of obligation to spend anything more. Bonus Report: You are also invited to download our Ultimate Four Special Report, highlighting our best 4 stocks to buy in Q3. Each has strong fundamentals and exceptional growth potential, ideally suited to soar in current trading conditions. Don't delay. Your opportunity ends at midnight Saturday, July 29. Look Inside Zacks Ultimate and Download the Ultimate Four Special Report Now » Best,
Tracey Ryniec, Zacks' insider and value strategist, is Editor in Charge of the Insider Trader. | ||||
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| 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. This free resource is being sent by Zacks.com. We look for investment resources and inform you of these resources, which you may choose to use in making your own investment decisions. Zacks is providing information on this resource to you subject to the Zacks "Terms of Service". https://www.zacks.com/terms_of_service Past performance is no guarantee of future results. Inherent in any investment is the potential for loss. This material is being provided for informational purposes only and nothing herein constitutes investment, legal, accounting or tax advice, or a recommendation to buy, sell or hold a security. No recommendation or advice is being given as to whether any investment is suitable for a particular investor. It should not be assumed that any investments in securities, companies, sectors or markets identified and described were or will be profitable. All information is current as of the date of herein and is subject to change without notice. Any views or opinions expressed may not reflect those of the firm as a whole. Zacks Investment Research is not a licensed securities dealer, broker or US investment adviser or investment bank. The Zacks #1 Rank Performance covers the period beginning on January 1, 1988 through July 3, 2023. These returns are from hypothetical portfolios consisting of stocks with Zacks Rank #1 that were rebalanced monthly with zero transaction costs. These are not the returns of actual portfolios of stocks. The S&P 500 is an unmanaged index. Visit https://www.zacks.com/performance_disclosure for information about the performance numbers displayed above. Zacks Emails Zacks Investment Research |
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