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The #1 Insider Signal Every Trader Should Know

·6 min read

We love it when a famous CEO buys a large chunk of his company’s stock.

In January 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, especially when it’s the CEO, the insider may be considered an optimist. 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 they 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, 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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Buy These Insider Stocks Monday

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.

Our recommended insider buys are time-sensitive and normally closed to public view – but you can still see them until midnight Sunday, August 28.

Catch our selected insider trades right now >>


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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 November 2020, six insiders including the CEO, the COO of Operations and four directors, dove in to buy again with five of them buying even before Pfizer’s big November 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 as the Ukraine War caused a further spike in crude prices.

Shares of Matador have jumped over 422% since December 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. Then, the trade becomes public information.

Hedge funds and other professional investors routinely use this information to get an edge on their trades.

But, for most of us, 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’ January 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 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.

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:  

• Who's buying? How much money are they putting in?
• When, if ever, have they bought shares in the past?
• Do they receive shares as part of their compensation, but still want more?
• Are we seeing "Cluster Buys"?

At the moment, only 10 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 3 new picks we added this month. After a long period of silence, many insiders now see irresistible opportunities and are buying again.

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, August 28.

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

Tracey Ryniec
Editor of Insider Trader

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




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