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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 oil producer Matador Resources, who explores in New Mexico, West Texas, and Northwest Louisiana, 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 that spring, including the CEO, 2 directors, the EVP of Reservoir Engineering, and the President-Operations. Off the Mar 17, 2023 lows, the shares rallied 30.9% through Dec 31, 2023. But WTI crude prices fell again in 2024, and so did shares of Matador. They fell to a new 52-week low this fall. That created yet another buying opportunity and the Matador insiders did not hesitate. In Sep 2024, 9 Matador insiders jumped in to buy shares including the CEO, the CFO, the General Counsel, several directors, and heads of departments including the President of Land A+D, Planning. 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 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 recent 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 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:
Very few stocks meet the demanding criteria of our Insider Trader portfolio » We invite you to look into the portfolio now. You'll find live recommendations, including 2 new picks we added this week. Both have potential for significant gains. This is the perfect time to buy alongside these super-savvy investors. But your opportunity won't last much longer. Bonus: Just 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. 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, September 29. See our insider trades and download 5 Stocks Set to Double now »
Tracey Ryniec, Zacks' insider and value strategist, is Editor in Charge of the Insider Trader. | ||||||||||
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