How many times have you heard that advice as stocks are plunging?
I don’t know about you, but it’s easier said than done.
But there’s one group of investors who charge in to buy when stocks are selling off: the corporate insiders.
How do they do it?
They have 2 key advantages over you and me that provide them the edge during uncertain times. If you follow their lead, you can have that edge too.
Two Key Advantages Give Insiders the Edge 1) Key Advantage #1: Insiders Know Their Business
Everyone knows that information is power.
Who knows more than those who are actually running the company?
The corporate insiders, including the CEO, CFO, General Counsels and even the Head of Human Resources, know who is getting hired or fired. They know that last month was a record month for sales and that there is a new factory that is opening in China which hasn’t been announced publicly yet.
They know when their business is booming.
Even better, they can actually purchase their company’s stock, knowing all this information, and it’s perfectly legal.
When corporate insiders get excited about their company’s prospects, you should too.
2) Key Advantage #2: Insiders Know When to Buy
Insiders don’t buy their own shares willy-nilly. As a stock rallies, insiders are likely to stay on the sidelines because their stock is no longer cheap.
Insiders like bargains just like the rest of us.
That’s why during last summer’s stock rally, the insiders went quiet. Just like you and I, the insider doesn’t want to buy an overpriced stock.
But when the company stock sells off, especially in a short period of time, the insider sees it as an opportunity. The insiders want a deal.
In 2022, stocks sold off and many were down over 30%, or more, even with several bear market rallies throughout the year. There were a lot of stocks suddenly on sale for the first time in 2 years.
Many companies were trading with single digit P/Es and PEGs under 1.0, which indicates strong growth.
There were deals.
Continued . . .
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Zacks Admits: “These Insiders Know More Than We Do”
Something’s up at several companies that already showed strong Zacks Rank fundamentals. Principal officers reported to the SEC (as required by law) that they put up their own money to purchase shares of their own stocks.
There’s only one reason why those insiders would do that: They expect their stocks to go up in price.
They know something we don’t. An expected contract? A product breakthrough? A planned merger? A brewing acquisition? Using our proprietary strategy, we find the soundest of these insider plays, and are now opening up our recommendations to public view – but only for a limited time.
See Zacks selected insider trades now >>
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Insiders Bought Again Last Summer
It’s not surprising, then, that after a company reports earnings, some corporate insiders stepped in to buy their shares on the cheap.
And when the market took another dive in June 2022, and again in October 2022, many stocks simply got too cheap for the insiders.
As we’ve seen, the insiders like to buy when there are dramatic sell-offs. When everyone else is selling, they see a bargain. Remember, they have knowledge of what is going on inside the company so they are more optimistic than the rest of us.
They know, based on sales, hiring and expansion plans, that business is simply not that gloomy.
In 2022, even some of the FANGMAN stock insiders jumped in to buy, which rarely happens as they already have millions of shares. Netflix’s founder, and ex-CEO and current executive chairman, Reed Hastings, bought $20 million in stock as Netflix shares took a dive after fourth quarter earnings in January last year. He was still CEO at the time.
That’s a buy that is made when the insider thinks the shares are over sold. Netflix shares have rebounded off their 2022 lows and are up 40% over the last 6 months.
Are you ready to follow their lead?
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.
Additionally, the SEC recently re-formatted the website, making it even more difficult to track who is buying, or selling, what.
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.
When the insiders step in to buy in bigger numbers during a market sell-off, it can become even more overwhelming with dozens of insiders buying at numerous companies.
Imagine trying to figure out which of those companies you should be buying?
A Simple Way to Identify Top Insider Buys
To filter out all but 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, fewer than 10 stocks meet the demanding criteria of our Insider Trader portfolio >>
We invite you to look into the portfolio now. Even during bearish 2022, we closed 11 double-digit gains such as +19.5%, +22.9%, +32.8%, and +56.9% in a matter of weeks.¹
Stocks are cheap today and insiders are priming to jump in. Something is brewing in a lot of strong companies – and you can still get in on the action. But your opportunity ends this weekend, and there will be no extensions for entry into this restricted portfolio.
Bonus: Just for exploring our 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. Past editions of this report have given investors a chance at +175.9%, +498.3%, even +673.0% gains.¹
Important note: Access to the Insider Trader portfolio and Special Report is limited. This opportunity ends Sunday, February 26.
See our insider trades and download 5 Stocks Set to Double now >>
Tracey Ryniec
Tracey Ryniec, Zacks' insider and value strategist, is Editor in Charge of the Insider Trader.
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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