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When "Insider" Greed Is Good
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ShareWhat do Michael Dell and Diane Sullivan have in common?
Both are CEOs who recently bought shares of their own companies just before the share prices moved higher.
You have probably heard of Michael Dell, the CEO of Dell Corporation. In the last 9 months he made a big statement by buying $250 million worth of shares in Dell, including a single $150 million transaction, even though he already owns a gazillion shares. Dell shares were up 5% within 5 days.
But who is Diane Sullivan?
She's the CEO of Brown Shoe Company, which operates the Famous Footwear chain. On June 6, she purchased 3000 shares of Brown Shoe for $26,900 in what was her first open market purchase since July 2004. Even at the worst of the sell-off during the financial crisis, she didn't buy shares.
Brown Shoe shares were cheap at the time, trading at just 7x forward estimates. That was the cheapest the company had been in 10 years.
Within 2 weeks of the purchase, shares were up 13%.
Clearly it is beneficial for investors to follow insider buying activity. But digging below the surface to find the obscure purchases by folks like Diane Sullivan is a worthwhile pursuit. Read on to learn how to do this on a regular basis.
Insider Buying Sends a Strong Signal
Why would these two CEOs spend their hard earned cash on their own companies’ stock when they already own a ton of shares?
Greed.
Pure and simple.
The opportunity to make more money motivates people - even people who are already billionaires like Michael Dell.
If top insiders are buying, it's because they 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 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???
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Prime Time for Insider Buying
Our research team discovered how to follow particular insiders at selected companies to substantial stock gains. Today, with stocks held down by often-irrational fears, we're seeing the biggest rush of insider buying since the last recession. Zacks' new strategy aims to exploit this and more than TRIPLE the performance of #1 Strong Buy stocks. Tests show that, even during bearish 2008, such gains reached double digits.
Don't worry, it's legal and ethical. Extreme demand closed it to new investors, but our strategy has re-opened to you. For 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 trumpet huge insider buys like Michael Dell's $150 million purchase, did you hear anything about Diane Sullivan's $26,900 purchase?
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 Insider 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 weekly list. Have you ever seen one of those lists? The sheer number of companies can be overwhelming.
Recently, insider buying was at its highest level since the March 2009 market lows as insiders saw the current sell off as a way to get more shares on the cheap. But even if you got a list of the insider buys in the last 2 weeks, how do you narrow it down to the stocks that truly are worth buying?
We'll Give You the Trades
To solve this problem, our Zacks research team developed a strategy that monitors selected insider buying activity at companies that already show strong earnings momentum and attractive valuations. Tests show that this Insider Trader approach can triple the performance of Zacks #1 Rank (Strong Buy) stocks. It even produced impressive profits during the heart of the bear market in 2008.
Today's volatile market is creating powerful and immediate insider opportunities. Now is a great time to start using this service. But I must caution you that access to its insider stocks had to be closed three months ago to new investors due to unprecedented demand. Entry will close again Tuesday, September 6 – possibly sooner.
Learn more about the new Zacks Insider Trader>>
Best,
Tracey Ryniec
Tracey, an expert Zacks Rank strategist, is the Editor in Charge of our new Insider Trader.
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| Market Summary | May 26, 2012 14:47 pm ET |
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