When most people hear about insider trading, they immediately think financial crime, fraud, and scandal… maybe even the time Martha Stewart was jailed for it.
Illegal insider trading refers generally to buying or selling a security, in breach of a fiduciary duty or other relationship of trust and confidence, while in possession of material, nonpublic information about the security. Insider trading violations may also include “tipping” such information, securities trading by the person “tipped,” and securities trading by those who misappropriate such information, says the U.S. Securities and Exchange Commission.
But to be perfectly honest with you, it’s the best way to make money.
And it’s also perfectly legal.
In fact, contrary to what some people assume it’s perfectly legal to trade along side company insiders, or any person or group with access to material information about a company.
“The legal version is when corporate insiders, officers, directors, employees and large shareholders, buy and sell stock in their own companies. When corporate insiders trade in their own securities, they must report their trades to the SEC. Many investors and traders use this information to identify companies with investment potential, the theory being, if the insiders are buying the stock, they must know more about their company than everyone else, so it is a good idea to buy the stock.”
“Insiders might sell their shares for any number of reasons, but they buy them for only one: they think the price will rise,” as Peter Lynch has said.
So what’s the best way to buy right along with the insiders?
The best way is to simply be aware of where insiders are the most bullish. In fact, here are three stocks that have seen considerable insider activity over the last few weeks.
Williams Sonoma (WSM)
On April 20, 2018, President & CEO, Laura Alber bought 20,522 shares. EVP, General Counsel David Randolph King bought 3,284 shares. Marta Benson, President of Pottery Barn bought 1,642 shares. Alex Bellos, President of West Elm Brand bought 1,231 shares.
Insiders may be buying on better earnings growth projections. The board of directors also just authorized a $0.04, or 10% increase in its quarterly cash dividend to $0.43, and a stock buyback program of $500 million. Technically, WSM appears oversold, consolidating at $48.85 a share. It’s looking like an attractive buy at current prices.
MGM Growth Properties (MGP)
CEO James Stewart just bought 14,358 shares of MGP. CFO and Treasurer Andy Chien bought 7,179 shares ahead of company earnings on Thursday, April 26, 2018.
Opko Health Inc. (OPK)
After watching OPK slip from a December 2016 high of $12.50 to $3, CEO & Chairman Phillip Frost M.D. just bought 75,000 shares for $222,641 on April 24, 2018. While the company continues to lose money, there’s reason for potential excitement other than the insider buy. Not only has the company made some leadership changes, the company’s pipeline may be healthy, too. In fact, it’s now waiting for FDA approval of its Claros point out care prostate specific antigen test. Also, a late-stage clinical study of its human growth hormone product hGH-CTP in treating children is in progress.
Real Networks Inc. (RNWK)
Between April 16 and 18, 2018, Chairman & CEO Robert Glaser bought a total of 35,755 shares in a price range of $3.23 to $3.47. This, as the stock begins to run higher from a low of $2.80. This comes just days before the company releases Q1 2018 earnings on May 3, 2018. In the fourth quarter, the company posted a net profit of $839,000 or two cents a share after posting a year-earlier loss. Revenue came in at $18.9 million.
Charles Schwab Corporation (SCHW)
Since April 23, 2018, three insiders have bought shares of SCHW. EVP of Investor Services, Terri Kallsen bought 18,803 shares at an average price of $30.17. Senior EVP and COO Joseph R. Martinetto bought 70,000 shares at an average price of $13.64. President CSIM bought 22,482 shares at an average price of $26.39. The company just beat Q1 earnings, too with EPS of 55 cents as compared to the 39 cents posted a year-earlier. This also beat expectations for 53 cents. Net income was $783 million. This is better than its net income of $525 million that was reported in the first quarter of 2017.
If you’re not yet paying attention to insider buying, you’re doing yourself a disservice.
Remember, “Insiders might sell their shares for any number of reasons, but they buy them for only one: they think the price will rise,” as Peter Lynch has said.