Were you surprised by the strength of the financial stocks in 2016?
Maybe you shouldn't have been.
One of the biggest CEO insider buys in 2016 was by Jamie Dimon of JPMorgan Chase who bought 500,000 shares for $26 million in February.
On the day he bought, JPMorgan's shares had hit a new 2016 low and were down 16.5% year-to-date thanks to the early year stock market sell off.
At the time, Dimon already had 7 million shares of JPMorgan stock in his 401k and his wife also owned a million shares in her own account.
It was just Dimon's third purchase of shares on the open market in the prior 12 years. He bought 500,000 shares in January 2009 during the Great Recession doom when bank shares were plunging to multi-year lows and another 500,000 in July 2012.
What did Jamie Dimon know that February?
The shares have since soared 69%.
In 2016, the Bankers Dove In
But he wasn't the only banker buying in 2016.
At Huntington Bancshares, three corporate insiders, including the CEO and CFO, bought on February 1. Since then, the shares have risen 53%.
At Zions Bancorporation, between January 28 and February 9, the CEO, the CFO, a director and two Executive Vice Presidents all bought shares. The shares are up 108%.
At KeyCorp, there was a huge cluster buy of insider buying between January 25 and February 8 that resulted in 9 directors and the CEO all buying shares. The stock has gained 65% since those buys.
They're at it Again in 2017
2016, it turns out, wasn't a fluke.
Despite the rally in bank stocks, the insiders are diving in for even more shares in 2017.
At JPMorgan, for example, a director bought 11,500 shares on April 19, 2017. It was his first open market purchase since he bought thousands of shares in January and February 2016. That was around the same time that Jamie Dimon was buying, when the shares were hitting new lows.
Insiders are also buying again at the big regional banks even though the shares are much higher than 2016.
Four insiders at Keycorp bought more shares in July and August 2017. All four of these insiders were among the 9 who bought in the big cluster buy at the bottom in January and February 2016.
For several of them, this is the first time they have bought again since those 2016 lows.
Cluster buys send a powerful signal.
What do they know that they are buying even though the shares are no longer at those 2016 lows? They are still seeing value in the shares.
Continued . . .
Why Are Insiders Buying at "New Highs"?
It's worth noting when major company officers pour their own money into their stocks. But it's an even stronger signal when those stocks are already riding at or near all-time highs.
Zacks found two such rare insider purchases, both near the top of their price charts with surging industries, good business practices, and strong outlooks. Our selected insider trades are normally closed to public view - but we are opening them up until midnight Sunday, August 13.
See insider trades now >>
Insider Buying Sends a Strong Signal
Why would these CEOs and corporate insiders spend so much of their money on their own companies' stock when they already own a ton of shares already?
Pure and simple.
The opportunity to make more money motivates people - even people who are already millionaires like Jamie Dimon.
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???
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 Dimon's $26 million buy, did you hear anything about Cree CEO Charles Swoboda's $222,000 buy of 10,000 shares on October 20, 2016?
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.
In some instances, the insiders have been known to buy en masse. Then what's an investor to do?
This happened during the stock market dip in August 2011. As stock prices fell, insiders felt that their companies were undervalued and rushed out to buy shares.
That August, insiders bought stock in 50 different S&P 500 companies in just one week. Even if you got a list of those stocks, how would you narrow it down to the stocks that were truly worth buying?
Picking the Best Insider Buys
To solve this problem, our Zacks research team developed a strategy that monitors selected insider buying activity at companies that already show strong earnings and excellent valuations. We do the work of sifting through all the insider buys so you don't have to.
Just a small number of stocks meet the demanding criteria of our Zacks' Insider Trader.
Right now, we've narrowed it down to 11 insider buys that make the grade.
One is particularly intriguing because the CEO already owned $32 million worth of his company's stock and receives shares as part of his compensation. The VP owned more than $1.3 million.
Yet, even with the stock near new highs, they recently bought more shares with nearly $2 million from their own pockets.
What do they know? Why did they make this big move? Well, for starters, our signals on their cutting-edge electronics stock are flashing brightly. It's now a Zacks Rank #1 Strong Buy with earnings estimates on the rise. It's also coming off a very positive earnings surprise.
You are welcome to share this and 10 other insider trades in our portfolio that have impressive gain potential. But please be aware that we are limiting access to these stocks. Entry to our portfolio closes to new investors this Sunday, August 13.
See Zacks' Insider Stocks Now >>
Tracey Ryniec, Zacks' value and insider strategist, is Editor in Charge of the Insider Trader portfolio.