My Three Rules for Insider Trading
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- Published on Wednesday, 11 April 2012 08:00
- Written by Andrew Snyder, Editorial Director, Inside Investing Daily
- Hits: 1027
My favorite indicator is about to become more valuable than ever. For one sector, it has already created a big payday.
One of my all-time favorite indicators is paying off once again. If there was ever an ultra-reliable market "tell," this is it.
When insiders are buying... stocks are rising.
Over the past six months, one sector in particular has seen strong insider buying. And the folks who have followed these corporate leaders are getting rich.
Take Huntington Bancshares (HBAN:NASDAQ), for instance.
It is at the heart of the insider-buying spree taking place in the regional banking sector. Since early last fall, a deep-pocketed team of executives and directors have been buying lot after lot of the bank's shares.
It started in August, when CEO Stephen Steinour bought nearly 300,000 shares for about $5 each.
The action heated up in October when Will Robertson, a member of the bank's board, bought over 75,000 shares for about $5.09 each.
The leadership team went on a buying spree to ring in the New Year... when eight insiders bought a total of over 175,000 shares of the bank for $5.88.
And just over a month ago, another spike in buying. This time nearly 30,000 shares were bought at a price just shy of six bucks each.
I circled the critical insider buys on the chart:
As we expect, these insiders had great timing. The shares the CEO grabbed during his stealthy purchase have outpaced the S&P 500 by a nearly 2-1 margin. He's up about 24%... a paycheck good for over $300,000.
But like I said, it's not just Huntington. The insider-buying spree is happening all across the regional banking sector.
Insiders are buying shares of LNB Bancorp (LNBB:NASDAQ).
It is the same story for Bridge Capital Holdings (BBNK:NASDAQ). Insiders there are buying hundreds of thousands of shares.
... and Patriot National Bancorp (PNBK:NASDAQ), too.
Just about every regional bank I've researched shows above-average insider buying.
It's a buying spree with a handsome reward. The sector has flat-out creamed the S&P 500 -- even during one of the best quarters in a decade for stocks. For every dollar an investor made playing "the market," he could have made two bucks playing regional banks.
Like I said at the top, insider buying is one of the most lucrative and reliable indicators we've got. And as the markets head sideways for the next six months, who is buying what is about to become the most valuable information you can get your hands on.
With that in mind, here are my three rules for insider buying.
First... volume. The more insiders that are buying, the better. And the larger their stakes, the larger the potential gains. It is common sense -- insiders don't buy big when the risks are high.
Second... give it time. A CEO is not going on a buying spree the night before a big merger announcement. That's a ticket to spend a few years at a state-owned country club. In the real world, that's not how insider trading works. Instead, officers and directors buy when they know shares are undervalued and are ready to head higher.
Insider buying is the ultimate value indicator.
Finally... size matters. Insiders at small companies have a lot more control over the bottom line than the top brass at the huge multinationals. They are focused on a smaller picture and, as the recent success from regional-banking insiders proves, have a much better sense of market timing.
Although the market will flatline from here, insider buying is not likely to wane. Pick out who's buying, follow their checkbook and when the markets gain momentum once again this fall, you'll be sitting on strong gains.
Editor's Note: I recently sat down to breakfast with my local congressman. And when he told me what he learned over the conversation, I was shocked.
You see, a group of millionaire politicos and businessmen -- from both sides of the aisle -- have staked their claim to profit from the biggest natural gas phenomenon of the 21st century. The thing is... you could stand to profit, as well. After all, the best way to turn the tables on the cronies in Washington is not to get mad, but to get even.
We put together a report for you outlining how you can stake your claim to potential profits.
Chart of the Day: The Dumb Way to Sell Smartphones
By Adam English, Associate Editor, Inside Investing Daily
It is official; I'm behind the times.
Smartphones should now be in the majority and people like me with a standard, or "feature," cellphone are quickly switching over.
In February, 49.7% of mobile phones in the U.S. were smartphones. By now -- two months later -- they should be above the 50% mark.
With an astonishing 38% increase from a year ago, smartphones have quickly taken over the market. More than two-thirds of those who acquired a new mobile device in the past three months chose a smartphone over a feature phone like mine.
It shouldn't come as a surprise considering the heavy marketing campaigns and the rapid evolution of apps, operating systems and touch screens.
What will be a surprise is how manufacturers handle the rapidly maturing market and work to maintain these sales and growth figures.
I have no doubt that many people, like me, are holding out for a deal that makes sense to them. It is these "value shoppers" who put smartphone manufacturers at a severe disadvantage. They are dependent on other businesses to sell their products.
There are very few people willing to pay over $500, sometimes closer to $1,000, for a new smartphone without a service plan. The sticker shock and lack of cheaper service plans for customers who already own a phone guarantees carriers will keep their stranglehold on the market.
Verizon, AT&T, Sprint, T-Mobile and any other major carrier will continue to drive profits through monthly payments -- not through new phone sales.
These companies have no incentive to sell a particular phone as long as they can sell a top-tier data plan. That is unless manufacturers give them a reason to pick their phones, whether it is from reduced costs per phone, lopsided business contracts with exclusive access or features that do not exist elsewhere.
All three of the options guarantee reduced profit for smartphone manufacturers.
It'll be surprising to see who can tighten their belt and survive once all of the easy business from technological geezers, like me, is gone.
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