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When "Insider" Greed Is Good

What do Elon Musk and Mary Dillon have in common?

Both are CEOs who have bought shares of their own companies just before the share prices moved higher.

You have probably heard of Elon Musk, the CEO of Tesla. In 2013, he made a big statement by buying over a million shares of Tesla stock for $100 million even though he already had plenty of shares.

Musk went out on the limb even further, as he had to borrow the money from Goldman Sachs to buy the shares. He used his previous holdings in Tesla, and stakes in other companies, as collateral. Since then, shares of Tesla are up over 100%.

But who is Mary Dillon?

She's the President and CEO of Ulta Beauty, a cosmetics and beauty product retailer with stores across the United States.

The CEO of Ulta bought nearly a million dollars worth of shares on the open market in March 2014 and September 2014.

Since the March 2014 purchase, shares are up 175%.

Clearly it is beneficial for investors to follow insider buying activity. Digging below the surface to find the obscure purchases by folks like Mary Dillon is where the big rewards can be found.

Insider Buying Sends a Strong Signal

Why would these two CEOs spend so much of their money on their own companies' stock when they already own a ton shares already?

Greed!

Pure and simple.

The opportunity to make more money motivates people - even people who are already billionaires like Elon Musk.

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???

More . . .

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Massive Insider Opportunity Ends Sunday

Just a few days ago, key insiders suddenly poured over $10 million of their own money into shares of their market-leading retail company. They already receive stock options as part of their compensation, but they're scooping up even more on the open market. This kind of "insider buy" can only mean one thing:

Those "in-the-know" expect a major price jump.

Don't miss your chance to make the most of this and a selection of other compelling opportunities. Check Zacks' insider portfolio before it closes to public entry midnight - Sunday, February 19.

See insider trades now >>

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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 huge insider buys like Elon Musk's $100 million purchase, did you hear anything about Mary Dillon's $475,000 purchase in September 2014?

More recently, the top insiders have continued to buy. But did they report it on the front page when Charles Swoboda, CEO of Cree, bought 10,000 shares in October 2016? Of course not. Yet Cree is up 16% since that purchase.

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?

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 handful of stocks meet the demanding criteria of our Zacks' Insider Trader. Right now, we've narrowed it down to 12 insider buys that make the grade.

One of them is a particularly massive buy in which 2 key officers ponied up over $10 million of their own money to buy shares. I rarely see such compelling testimony to the future of a company.

Both insiders already receive stock options as part of their compensation, but they wanted more. Even the Chief Operating Office got in on the action.

You are welcome to share this and 11 other insider trades with potential for tremendous gains. But please be aware that we must limit access to these stocks. Entry to our portfolio closes to new investors Sunday, February 19.

See Zacks' insider stocks now >>

Best,

Tracey

Tracey Ryniec, Zacks' value and insider strategist, is Editor in Charge of the Insider Trader portfolio.

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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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