Trading With the Insiders: A Beginner's How-To
Legendary Fidelity Investments manager Peter Lynch once said, “Insiders might sell their shares for any number of reasons, but they buy them for only one: They think the price will rise.”
And the raw data — over decades of research — shows one inarguable truth: Insider buying of an undervalued stock almost always means the price is about to soar.
In fact, University of Michigan professor Nejat Seyhun, who wrote the book Investment Intelligence From Insider Trading, found that firms who simply monitor insider buying outperform the market by 4.2% on average.
In 2001, University of Illinois at Urbana-Champaign’s Josef Lakonishok and Inmoo Lee concluded that figure to be 4.8%...
Two years later, Harvard University’s Leslie A. Jeng and Richard Zeckhauser and Yale University’s Andrew Metrick calculated returns as soon as insiders made a transaction, and “in raw returns, insider purchases beat the market returns by 11.2% per year.”
4.2%... 4.8%... 11.2%...
The fact is this: Every reputable study shows that if you use insider buying as an indicator, you will beat the market indexes.
Forty years of academic studies have shown this as a proven fact over half a century of market data.
So what does this mean for you?
If the CEOs, CFOs, and directors of a beaten-down, ignored stock are buying up shares (and NOT selling them), they know something you don’t.
And not just you — they know something the analysts and portfolio managers don’t.
These executives and directors have the most up-to-date information on their company’s prospects.
They are intimately familiar with cyclical trends, order flow, supply and production bottlenecks, costs, BIG upcoming deals, and all the other ingredients of business success.
And if they are locked in a buying frenzy of company stock — behind closed doors — putting their OWN money on the line, there's good reason behind it.
Following the Smart Money
The bottom line is this: If you simply look for heavy insider buying on stocks that everyone else is ignoring...
And buy with those insiders...
It is almost an ironclad guarantee that you’re getting in on the bottom floor of a ferocious upward move — a move that could see you banking double- and triple-digit gains in just a few months or even just weeks.
Researching this sort of activity over the last few months, I have identified one company that has seen enormous insider buying by all the biggest decision makers.
Right now, at current market prices, I'm predicting that investors buying in today will see at least a 130% gain in the near to mid term.
Where did I get such a number?
It’s simple — there are five total analysts who are currently covering this company.
Out of that group of analysts, one has given this company a “Buy” rating, three have upgraded their rating to “Outperform,” and one has issued a rating of “Hold.”
These analysts include Lake Street, Oppenheimer, ROTH Capital, Northland Capital, and Craig Hallum.
Their most common projection for this company’s share price is 130% higher than its current price (which is hovering around only $1 per share).
So, a 130% increase on this stock’s share price is my most conservative estimate...
But I think it’s going to go a lot higher because, remember, insiders know more about what’s about to happen in a business than any analyst does.
And my research has uncovered...
Over $150,000 in insider buying over the last six months (with ZERO selling).
And I can prove it.
The Paper Trail Doesn't Lie
You see, the law requires insiders to fill out and file Form 4 with the Securities Exchange Commission before the end of the second business day after a purchase or sale of stock...
And this company’s president and CEO started filing Form 4s with the SEC on August 14, 2017, when he bought 10,500 shares in his own company.
Two months later, the share price of this company skyrocketed 81.24%.
Then, on November 7, 2017, this company’s CEO bought another 12,000 shares.
A few months later, on February 8, 2018, he bought 5,995 more shares.
And I’m sure he’s very happy he did — because by May 2018, share prices had EXPLODED 135.71%
And he still wasn't done. This same CEO purchased 12,005 shares on June 12, 2018, and then 7,500 shares on August 10, 2018.
This chief executive officer was actually INCREASING the frequency and amount of shares he is purchasing.
And the only reason he would be doing this is because he knows something the rest of us don’t.
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Looks Can Be Deceiving
But here's the real kicker, and the one fact that makes me lose what little faith I had in mainstream financial analysts and fund managers...
Wall Street is completely ignoring this company right now.
Why? Because on the surface, this stock doesn’t look appealing.
It is down 25% from its 52-week high.
Not only that, but by definition, it is a penny stock — it is flying completely under the radar of most big-time investors and analysts who are hocking the next “hot tip”...
Nobody is talking about it.
Nevertheless, the insiders know something is about to happen, and they're acting on it.
It’s not just the president and CEO of this company who has been gobbling up massive amounts of shares.
This company’s CFO purchased 5,880 shares on November 9, 2017, and then 2,650 more shares on June 14, 2018.
In addition, three other top-tier executive directors have started buying up shares at a shocking rate.
This director bought 30,000 SHARES on August 14, 2017; 9,000 shares on February 8, 2018; and 5,000 shares on June 12, 2018.
Is This a Conspiracy?
Another director purchased 1,000 shares on August 9, 2017; 5,880 shares on November 9, 2017; and 2,650 shares on June 14, 2018.
A third executive director purchased 5,000 shares on August 10, 2018, and yet another director has built his position by 11,230 shares since February 8, 2018.
Still another director purchased an astounding 30,000 shares on June 12, 2018...
All in all, six high-level executives and directors in this company have purchased more than 150,000 shares over the course of just the last few months.
Remember what Peter Lynch said — insiders only buy for one reason: “They think the price will rise.”
And half a century of data and studies show they are almost always right.
Five separate analyst “outsiders” have predicted a 130% price increase for this company based solely on its fundamentals...
But with this amount of insider buying, I would not be surprised to see the share price of this stock hit 200%... 500%... or even 1,000% in a very short amount of time.
Now, you may be wondering...
What exactly is this company, and what does it do?
Its business is distributed energy generation, one of the fastest-growing industries in the entire energy sector.
The technology this company develops, put simply, allows for individual buildings to create their own power, heat, and hot water, even if a natural or man-made disaster shuts down the power grid.
Buildings equipped with this very technology were among the only ones to keep their power on when Hurricane Sandy ravaged New York City back in 2012.
It's clean, it's efficient, and it's more reliable than any other form of power generation known to man.
Those are the basics. To get the full story, click here.
Fortune favors the bold,
Coming to us from an already impressive career as an independent trader and private investor, Alex's specialty is in the often misunderstood but highly profitable development-stage microcap sector. Focusing on young, aggressive, innovative biotech and technology firms from the U.S. and Canada, Alex has built a track record most Wall Street hedge funders would envy. Alex contributes his thoughts and insights regularly to Wealth Daily. To learn more about Alex, click here.
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