We love it when a famous CEO buys a large chunk of his company’s stock.
In Nov 2021, Dara Khosrowshahi, the CEO of Uber, bought 200,000 shares for nearly $9 million even though he already had plenty of shares.
This was his first open market purchase of Uber shares this year.
This big purchase made headlines.
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.
Continued . . .
Insider Trade Alert: Monster “Cluster Buy”
Something’s up at a little-known financial small-cap. Suddenly, the CEO, CFO, and 8 Directors dug into their wallets for over $1.8 million and bought hundreds of thousands of shares of their own company. It’s a perfect storm. The stock price had pulled back. Earnings estimates are soaring upward. A big move is planned for Asia.
They must have had quite a board meeting!
Using a proprietary strategy, we targeted that insider buying spree plus a handful of other compelling stocks with fresh insider purchases. These time-sensitive opportunities are now open to public view – but only until midnight Sunday, November 28.
See Zacks’ hand-picked insider trades now >>
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?
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.
Shares of Matador have rallied over 317% since Dec 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. 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 Dara Khosrowshahi’s $9 million Nov 2021 Uber 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.
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.
Easy Way to Take Advantage
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.
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 a just-added under $10 financial small-cap that is experiencing one of the most massive “Cluster Buys” I've seen in years.
The CEO, CFO, and 8 Directors just poured over $1.8 million from their own wallets to snap up hundreds of thousands of shares.
Obviously, something is brewing and you can still join the feeding frenzy at this company, 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 moves. 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 midnight Sunday, November 28.
See our insider trades and download 5 Stocks Set to Double now >>
Editor of Insider Trader
Tracey Ryniec, Zacks' insider and value strategist, is Editor in Charge of the Insider Trader portfolio.