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The #1 Insider Signal Every Trader Should Know

·6 min read
In this article:
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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.

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. Energy was the best performing S&P 500 sector in 2021.

The rally has continued into 2022.

Shares of Matador have jumped over 292% since Dec 1, 2020.

What did they know?

Continued . . .

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Buy These Insider Stocks ASAP

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.

Because of their inside knowledge of anticipated contracts, mergers, product breakthroughs and the like, insiders must report their trades to the SEC within 48 hours. Zacks has zeroed in on the best of these buys. We took into consideration which insiders bought, how many jumped in, how much money they poured in, and much more.

Our recommended insider buys are time-sensitive and normally closed to public view – but you can still see them until midnight Sunday, February 27.

Catch our selected insider trades right now >>

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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 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 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.

Only 7 to 10 stocks meet our demanding criteria at any given time.

We invite you to look into our Insider Trader portfolio now.

Bonus: Just for exploring those trades, 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.

Previous editions of this report gave investors a chance at +175.9%, +498.3%, even +673.0% gains.¹

Deadline Approaching Fast: We want to give our readers the best chance to profit so we can’t let everyone see our best stocks. Access to the Insider Trader portfolio and Special Report is limited and will close to the public midnight Sunday, February 27.

See our insider trades and download 5 Stocks Set to Double now >>

Best,

Tracey Ryniec
Editor of Insider Trader

Tracey Ryniec, Zacks' insider and value stock strategist, is Editor in Charge of the Insider Trader portfolio.

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.




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