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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 companies' 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 June 26, 2024, Matador shares are up +399%. 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 to start 2023 and the insiders saw yet another buying opportunity. A cluster of 5 insiders bought shares in the spring of 2023, including the CEO, 2 directors, the EVP of Reservoir Engineering and the President-Operations. Recently, Matador saw record energy production in the fourth quarter 2023. But it sees even brighter days ahead. This year, the company expects a record year in energy production. Shares of Matador are up +35% since Mar 17, 2023. What did the insiders 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 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 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 I've developed a unique strategy to identify only the highest quality picks insiders are scooping up. We monitor selected insider buying activity at companies with strong earnings and valuations. Then we analyze:
And then, what's the Zacks assessment of the stocks? This can narrow down many insider purchases to a handful with the best prospects to surge in coming months. While not all picks can be winners, that's how our Insider Trader portfolio recently closed gains of +60.0%, +65.2% and +86.7%.¹ I invite you to look into this portfolio right away. Normally closed to the public, it's now open - but only through the weekend. And it's in high demand. 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, June 30. Sorry, there will be no extensions to this opportunity. See our insider trades and download 5 Stocks Set to Double now »
Tracey Ryniec, Zacks' insider and value strategist, is Editor in Charge of Zacks 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. Access grants you a comprehensive list of all open and closed trades. 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 May 6, 2024. 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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