Category: Insider Trading

3 Stocks with High Insider Buying: A Potential Indicator of Investment Opportunity

by Fred Fuld III

For investors seeking an edge in the stock market, observing the actions of company insiders can offer valuable insights. “Insider buying” refers to the purchase of a company’s shares by its own executives, directors, or other key employees. These individuals have intimate knowledge of the company’s operations, future plans, and overall health, making their investment decisions potentially significant signals for external investors.

Why might insider buying be a favorable sign? The rationale is straightforward: insiders are likely to buy their company’s stock when they believe it is undervalued and has the potential for future growth. Their personal capital is at stake, suggesting a strong conviction in the company’s prospects. This can be seen as a vote of confidence from those with the most in-depth understanding of the business. While insider buying doesn’t guarantee stock price appreciation, it can be a compelling indicator that aligns with a positive outlook for the company.

Here are a few stocks that have shown notable recent insider buying activity, along with a brief profile and recent financial highlights:

Asbury Automotive Group, Inc. (ABG)

  • Profile: Asbury Automotive Group is one of the largest automotive retailers in the United States. It operates through a network of dealerships offering a wide range of new and used vehicles, as well as related services such as parts, vehicle maintenance, and finance and insurance products. The company has a significant presence across multiple states and represents numerous domestic and foreign brands.
  • Recent Financial Information: The company has a market cap of $4.37 billion. The stock trades at 8.1 times trailing earnings and 8.2 times forward earnings, and sports an extremely favorable price to sales ratio of 0.25. Earnings per share growth was over 40% year-over-year on a revenue growth of 8.4%. Recently, several insiders, including a director, have been reported to have purchased shares of ABG in the open market. Insider ownership jumped 53% in the last six months.

Marriott Vacations Worldwide Corporation (VAC)

  • Profile: Marriott Vacations Worldwide is a leading global vacation company that offers vacation ownership, exchange, rental, and resort and property management services. The company develops, markets, sells, and manages vacation ownership interests under the Marriott Vacation Club®, Grand Residences by Marriott®, Sheraton Vacation Club®, Westin Vacation Club®, The Ritz-Carlton Destination Club®, and St. Regis Residence Club® brands.
  • Recent Financial Information:  The company has a market cap of $2.45 billion. The stock has a trailing price to earnings ratio of 10.7 and a forward P/E of 9.2. It has an excellent price to sales ratio of 0.48 and is even selling below book value. Earnings per share growth skyrocketed over 63% year-over-year on a revenue growth of 7.7%. In recent filings, multiple insiders, including executive officers, have disclosed purchases of VAC stock in the open market, with net insider buying transactions increasing by 33.3%.

Victoria’s Secret & Co. (VSCO)

  • Profile: Victoria’s Secret & Co. is a leading specialty retailer of lingerie, pajamas, and beauty products. The company operates through its Victoria’s Secret and PINK brands, offering a wide assortment of apparel, fragrances, and accessories. Victoria’s Secret sells its products through stores and online channels globally.
  • Recent Financial Information: The company, which has a market cap of $1.69 billion, trades at 10.6 times trailing earnings and 9.9 times forward earnings, and offers a very favorable price to sales ratio of 0.27. Earnings per share growth was over 59% year-over-year on a revenue growth of 1.4%. Notably, several insider transactions indicate open market purchases of VSCO stock by directors and executive officers, with a net increase of more than 22% during the last six months.

Important Considerations:

While insider buying can be an encouraging sign, it’s crucial to remember that it’s just one piece of the investment puzzle. Investors should conduct thorough due diligence, analyzing the company’s financials, industry trends, and overall market conditions. Insider selling, for instance, doesn’t necessarily indicate a negative outlook, as insiders may sell for various personal financial reasons. Furthermore, the volume and frequency of insider buying activity should be considered. Small, infrequent purchases might not carry the same weight as large, consistent buying by multiple insiders.

Conclusion:

Tracking insider buying activity can provide valuable insights into how company executives view their own stock’s prospects. When multiple insiders are putting their own money into the company, it can suggest a belief in future positive performance. However, it should always be used in conjunction with a comprehensive investment strategy that includes fundamental analysis and risk assessment. By considering insider buying as one indicator among many, investors can potentially identify undervalued opportunities and make more informed investment decisions.

Please remember that this article and all our articles are for informational purposes only and should not be considered financial advice. Always consult with a qualified financial advisor before making any investment decisions.

Disclosure: Author didn’t own any of the above at the time the article was written.

Stocks with Big Insider Buying

by Fred Fuld III

An insider is an executive officer or a director of a corporation, or an individual or company that owns more than 10% of the company.

When an insider buys stock in their own company, it is usually for a reason. It is usually because the prospects of a company look good and the stock is favorably priced. If an insider sells, it is often the opposite, although sometimes they need to sell to raise cash for various reasons. This is why insider buying is a better indicator than insider selling.

Of course, insiders are not allowed to trade on what is called “insider information”, which is significant non-public information.

However, insiders can invest based on their “feel” for the company. This is where the average stock investor or trader can use this to their advantage, because all insider transactions must be reported to the SEC.

Some stocks have had a substantial increase in insider buying, with several of them in the financial sector.

All of the following stocks have had over a 90% increase in insider buying during the last six months, and they all have a trailing price-to-earnings ratio and a forward P/E ratio of less than 15.

Company Symbol P/E Ratio
Artisan Partners Asset Mgmt. APAM 11.04
StoneCastle Financial Corp. BANX 5.11
TCG BDC, Inc. CGBD 5.61
Finance Of America FOA 0.34
GMS Inc. GMS 14.56
Western Alliance Bancorp WAL 14.02

Happy investing!

Disclosure: Author didn’t own any of the above at the time the article was written.

How to Make Money From Insider Trading Legally

by Fred Fuld III

You may have heard that insider trading is illegal. And it is, un der most circumstances. An insider is a top executive, a director, or a holder of 10% or more of the outstanding shares of a corporation. If an insider gives you information about the company that is not disclosed to the public, and you act on that info to profit from buying or shorting the company’s shares, that is illegal.

However, insiders are allowed to buy shares in their own company, as long as it is reported to the SEC in a short period of time. Also, the purchases and sales that the insiders make is available to the public.

For long term investors, this can be useful information, especially if insiders make purchases, because they usually do so based on a long term horizon. If they sell, it could be for any number of reasons totally unrelated to th company, such as raising funds to buy a house, estate planning purposes, paying for their kids college education, or diversification.

So if you look for the stocks that have has more than a 20% increase in total insider ownership over the last six months, you might find some interesting investment opportunities. All of the following fit that category, plus they ll have price to earnings ratios of less than 15, forward P/E ratios less than 15, and a low price to earnings growth ratio of less than one.

Company Ticker Market Cap P/E
Apogee Enterprises, Inc. APOG 880.84M 11.33
Avon Products, Inc. AVP 772.51M 6.32
Famous Dave’s of America DAVE 41.90M 9.31
GMS Inc. GMS 627.56M 12.22
Hyster-Yale Materials Handlg HY 979.49M 13.4
Koppers Holdings Inc. KOP 381.94M 12.49
McDermott International MDR 1.25B 3.47
Riverview Bancorp, Inc. RVSB 165.13M 10.7
Olympic Steel, Inc. ZEUS 176.46M 3.93

Congressman Accused of Insider Trading Under the STOCK Act

by Fred Fuld III

You may have read recently that New York Congressman Chris Collins has been charged with insider trading, relating to Innate Immunotherapeutics Limited (INNMF) which failed a drug trial.

Once the news was out, the stock dropped by a huge amount. Collins was on the Board of Directors of this company and the largest shareholder.

But wait a minute. Aren’t members of Congress exempt from the Insider Trading Laws? Well that was true, beginning around the time of the Civil War.  However, on April 4, 2012, the STOCK Act was passed and signed into law by President Obama, to no fanfare.

First, what is inside trading? It buying or selling a stock based on news about a company that you become aware of prior to the dissemination of the news to the public. It is illegal.

Members of Congress Now Subject to Insider Trading Laws

OK, so now the STOCK Act. It is the Stop Trading on Congressional Knowledge Act which basic overturned the ability of Congresspeople to freely trade stocks on inside information while being exempt from insider trading laws. The STOCK Act put an end to this governmental bonus.

Details of the STOCK Act:
Answers the President’s Call to Ban Insider Trading for Members and Congressional Staff: The STOCK Act expressly affirms that Members of Congress and staff are not exempt from the insider trading prohibitions of federal securities laws and gives House and Senate ethics committees authority to implement additional ethics rules. The Act makes clear that Members and staff owe a duty to the citizens of the United States not to misappropriate nonpublic information to make a profit.

Increases Transparency in Financial Disclosure Reporting: The STOCK Act amends the Ethics in Government Act of 1978 to require a government-wide shift to electronic reporting and online availability of public financial disclosure information. The STOCK Act provides additional transparency for Members of Congress, legislative staff and other government employees currently required to make public financial disclosures:
• Trade Reporting: requires that Members of Congress and government employees report certain investment transactions within 45 days after a trade.

• Online Availability: mandates that the information in public financial disclosure reports (currently made available on request) be made available on agency websites and ultimately through searchable, sortable databases.

New Ethics Requirements:
• Expands Pension Forfeiture for Corrupt Members: the STOCK Act requires forfeiture of federal pension if a Member of Congress commits one of several corruption offenses while serving as an elected official. Current law forfeits a Member’s pension for conviction of offenses committed while serving in Congress. The STOCK Act expands forfeiture to apply to misconduct by Members committed in other federal, state and local elected offices and adds further federal crimes, including insider trading, for which forfeiture will be required.

• Requires Disclosure of Terms of Mortgages: the STOCK Act will require Members and certain high level government officials to disclose the terms of personal mortgages.

• Bans Special Access to Initial Public Offerings (IPOs): the STOCK Act limits participation in IPOs by Members and senior government employees to purchases available to the public generally.

• Requires Report on Political Intelligence in the Financial Markets: the STOCK Act requires GAO and CRS to produce a report on the role of political intelligence firms in the financial markets.

• Requires Job Seekers to Disclose: the STOCK Act requires that Members of Congress and senior federal employees file a written notification with their ethics office when starting a job negotiation to leave the government.

Bans Bonuses for Fannie & Freddie Executives: the STOCK Act bars senior executives at Fannie Mae and Freddie Mac from receiving bonuses during any period of conservatorship after enactment.