What is one of the strongest signals to indicate that a stock is poised for an excellent path ahead? The answer is simple – insider buying. Insiders are people who have access to certain information about the company that is not leaked to the public. Insiders include top management of a company, directors and investors who hold more than 10% of the stock. Insider buying has a positive effect on the share prices of a company. One of the legends of investing, Peter Lynch had once commented that there could be many reasons why an insider would sell his shares, but there is always only one reason why he buys – anticipation that a particular company’s share would see an increase in the future. Considering these points, here are some of the best stocks from those that have seen a great deal of insider buying in the recent past.
Share prices surge due to CEO buying
An otherwise insignificant name in the medical device and drug development company, Opko Health (OPK, Financial) shot to prominence during the last quarter of 2014 when its share prices grew by 26%. The reason for the huge increase was because the company’s Chairman and Chief Executive Officer, Dr. Philip Frost had invested close to $2.3million for buying Opko’s share prices around 8 times as of 2015. Frost, known for his excellent investment sense held 162million shares in Opko, which were valued at $ 1.8billion. When a legend like him purchased shares from his own company, it sent out positive signals in the stock market due to which share prices surged. The following is the stock movement of Opko for the last few months:
Frequent spells of insider buying brings huge gains
Shareholders of Biglari Holdings (BH, Financial) the restaurant group were in for a pleasant surprise when share prices went up by nearly 30% during the last quarter of 2014 and by 7% for just January 2015. These gains were as a result of frequent spells of insider buying done by Sardar Biglari, Chairman and Chief Executive Officer of Biglari Holdings. As of 2015, Biglari had purchased shares in his company for a record 11 times and the value of his purchases was pegged at $6.9 million. He had not sold any of his shares during the last year and this type of aggressive buying was enough to instil confidence among the buyers, regarding the future of the company. Biglari considered the great investing legend, Warren Buffet, his guru and had established a name for himself as a shrewd investor. Hence, his actions triggered a high share price increase as seen from the chart below:
A rebound on the cards
Investors of metals processing company, Worthington Industries (WOR, Financial) would have lost their hope in the company, if not for an insider buying activity that happened during the first month of the year. As many as 5 insiders purchased close to $1.3million worth of shares at the rate of $24.40 per share. This activity came as a huge blessing for Worthington, because share prices had reduced by 31% during 2014 and by 5% in 2015, had risen by a slight 17% during the last week of January, as soon as this was known to the stakeholders. Since 5 insiders had invested money to buy shares of Worthington, it assured the investors that the company was going on the right path of progress and that its share prices would increase in the future. Share price movement of the company for the last few months is shown below:
Conclusion
When the stocks that you have invested in, are going through a rough patch, you must never try to quit and look for better options. You must watch out for strong signals like insider buying and other announcements which have the potential to push up share prices to a great extent. You need to be patient with your investments to get long term benefits. Usually insider buying will never give you wrong signals; hence it is one of the most reliable clues to watch out for the progress of your stock.
