The #1 Signal in Insider Trading - Weekend Wisdom

We love it when a famous CEO buys a large chunk of his company's stock.

In 2013, Elon Musk, the CEO of Tesla, bought over a million shares of Tesla stock for $100 million even though he already had plenty of shares. It made headlines.

But what about when non-famous insiders buy their companies' stock and when they buy en masse?

Usually no one pays any attention.

That would be a mistake.

When Elon Musk bought in 2013, he was the only insider at Tesla buying at that time. But at some companies, it's not just the CEO who is putting her money on the line, it is multiple insiders all jumping in at the same time.

This mass insider buying behavior is called a "cluster buy" and it is the strongest signal you can get in insider trading.

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 General Counsel.

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.

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 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.

More . . .


2 "Cluster Buy Stocks" for Monday Morning

Zacks has just posted 2 trades with explosive profit potential. That's because Officers and substantial owners of these companies are buying up significant shares with their own money.

One is testing a product that has billion dollar potential. Top management believes it because they are ALL buying shares. The second company is a small cap 12 to 18 months ahead of competitors. Its CEO, General Counsel, and other key players are opening their wallets. Both companies also show strong valuations and Zacks Rank timeliness.

Don't miss them: Access to our insider portfolio closes no later than 11:59 pm tomorrow, Saturday, February 7.

See Zacks' "Insider Stocks" today >>


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?

One insider buying might be an optimist, but three or four insiders all buying at the same time? That's a powerful consensus.

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.

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 Elon Musk's $100 million purchase, did you hear anything about the 2014 cluster buy at Ulta, where the CEO, the head of Human Resources and a director all bought shares in the same week?

I thought not.

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 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.

How to Solve This Problem?

Our Zacks research team developed a strategy that does the job for you. It monitors selected insider buying activity at companies that already show strong earnings and exciting valuations. Only a handful of stocks meet the demanding criteria of the Zacks Insider Trader.

Right now, we've narrowed down the list of stocks to 9 insider buys that make the grade. In fact, two were just added to the portfolio: One is testing a product with billion dollar potential, and another is already marketing a key product that analysts say is 12 to 18 months ahead of competitors.

These trades have significant upside potential and you are welcome to get in on them, but access must be limited. Entry closes to new investors no later than 11:59 pm this Saturday, February 7.

See what our Insider Trader is recommending today >>



Tracey Ryniec is Zacks' value strategist and Editor in Charge of our Zacks Insider Trader.

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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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