In this article, we will take a detailed look at Insiders are Amassing These 10 Stocks in April. For a quick overview of such stocks, read our article Insiders are Amassing These 5 Stocks in April.
Can I make money investing in stocks that insiders are buying? Is there any link between stock returns and insider buying and selling activity. Researchers and academics have been investing time and effort to answer these questions over the past several decades. And luckily, we have more than enough data points to conclude that yes, keeping tabs on insider buying is important.
In a research paper entitled Are Insider Trades Informative? Josef Lakonishok from University of Illinois at Urbana-Champaign and NBER and Inmoo Lee from Korea Advanced Institute of Science and Technology analyzed insider buying and selling activity for companies trading on NYSE, AMEX, and NASDAQ for the period starting 1975 through 1995. The research found out that insiders in aggregate are contrarian investors and their returns are better than the normal contrarian investing strategies. The report also said that insider buying is indicative of important information while insider selling seems to have no “predictive” ability. Peter Lynch in his book One Up On Wall Street also talks about the importance of tracking insider buying activity and says when insiders are selling stocks of their companies there could be several motivations behind these transactions but when they are buying, you should pay attention since it usually means the stock will go up. We talked in detail about Peter Lynch’s thoughts on insider buying and selling in our article titled Underperforming Stocks Insiders are Buying.
Outsiders Can Make “Abnormal Profits” by Mimicking Insider Buying
Lakonishok and Lee’s research paper also talks about several studies that have already shown why and how insider buying is related with stock gains. For example, the paper mentioned Bettis, Vickrey, and Vickrey (1997), which concluded that outsiders can make “abnormal profits, net of transaction costs, by analyzing publicly available information about large insider transactions by top executives.” Lakonishok and Lee’s research paper also highlights that insiders are contrarians and buy value stocks that have performed well in the past. They also buy small-cap stocks with better growth prospects and past performance.
Small-Cap Insider Buying is More Important Than Large-Caps
However, one of the most important findings of the research paper is that market often “underreacts” to insider purchases and there has been no evidence that insider buying is directly linked with stock returns in the short term (the emphasis is on short term). However, for long-term investors, insider buying activity is a treasure trove which can also be used to “time the market.”
“In spite of the attention that insiders’ activities receive, we do not observe any major stock price changes around the time of insider trading or around the reporting dates. This is very surprising given the attention that insiders’ activities receive. However, we find that insiders’ trades are informative for longer investment horizons, suggesting that the market underreacts to this information. Aggregate insider trading seems to predict market movements and could be used as a tool to time the market, as previously documented by Seyhun (1988, 1998). Insiders are definitely contrarian investors, but insiders are better at timing the market than simple contrarian strategies. When insiders are optimistic, markets do well, and when insiders are pessimistic, markets do poorly, with an annual spread in returns between the two states exceeding 10%. Insiders are doing a better job in predicting aggregate movements of small companies than of large companies.”
The research also says that since the market values larger companies more efficiently and correctly, the potential of “exploiting” insider buying activity is higher for smaller companies. Small-cap and micro-cap companies often do not get a lot of attention from analysts and researchers. These companies usually come to limelight after they announce a major product, project or news. Investors can spot these companies before they become big by keeping track of their insiders’ activity. Check out our articles Insiders are Buying These Penny Stocks and 10 Mid-Cap Stocks with Insider Purchases.
Photo by Chris Liverani on Unsplash
Insider Buying Returns and Performance in 2024
How has mimicking insider buying as an investment strategy been working so far this year? Catalyst Insider Buying (INSCX) invests in companies experiencing insider buying by corporate executives, directors, large shareholders or activist shareholders. The fund is up 22% year to date through April 14, compared to the S&P 500’s gain of about 8%. Insider Monkey’s monthly newsletter and portfolio that focuses on activist hedge funds, insider trading and stock picks from hedge fund investor newsletters and conferences returned 199.2% between March 2017 and March 12, 2024 and outperformed the S&P 500 ETFs’ 144.9% gain by more than 54 percentage points.
Methodology
For this article we used Insider Monkey’s insider trading stock screener and picked 10 stocks that saw insider buying activity through April 7. Some top names in the list include Dollar Tree Inc (NASDAQ:DLTR), SentinelOne Inc (NYSE:S) and Simon Property Group Inc (NYSE:SPG).
10. Butler National Corporation (OTC:BUKS)
Number of Hedge Fund Investors: N/A
Aerospace products and services company Butler National Corporation (OTC:BUKS) is one of the penny stocks seeing insider buying activity. On April 4, Joseph Patrick Daly, a director and 10% owner at Butler National Corporation (OTC:BUKS), piled into 89,200 shares of Butler National Corporation (OTC:BUKS) at $0.79 per share. Since then the stock is up 1.27%.
9. Cardinal Ethanol, LLC (OTC:CRDE)
Number of Hedge Fund Investors: N/A
Cardinal Ethanol, LLC (OTC:CRDE) makes fuel-grade ethanol, distiller grains, corn oil, and raw carbon dioxide. On April 1, Robert Nathan Baker, a director at Cardinal Ethanol, LLC (OTC:CRDE), bought 34 shares of Cardinal Ethanol, LLC (OTC:CRDE) at $19,875.00 per share. As of April 7 the stock was trading at $19,500. Since the insider buying transaction there has been no significant change in the stock price.
8. Boundless Bio Inc (NASDAQ:BOLD)
Number of Hedge Fund Investors: N/A
Cancer-focused therapeutics company Boundless Bio Inc (NASDAQ:BOLD) is one of the stocks with latest insider purchases. Kristina Burow, a director of Boundless Bio Inc (NASDAQ:BOLD), on April 2 bought 200,000 shares of Boundless Bio Inc (NASDAQ:BOLD) at $16 per share. Since then the stock has decreased by 2.9%.
7. ALTi Global, Inc. (NASDAQ:ALTI)
Number of Hedge Fund Investors: N/A
Wealth and asset management company ALTi Global, Inc. (NASDAQ:ALTI) saw insider buying activity recently when Mark F. Furlong, a director at ALTi Global, Inc.’s (NASDAQ:ALTI) board, on April 2 bought 25,000 shares of ALTi Global, Inc. (NASDAQ:ALTI) at $5.43. The total dollar value of this insider buying transaction was $135,750. Since this transaction the stock is down 1%.
In addition to ALTI, insiders are also buying Dollar Tree Inc (NASDAQ:DLTR), SentinelOne Inc (NYSE:S) and Simon Property Group Inc (NYSE:SPG).
6. BRT Apartments Corp (NYSE:BRT)
Number of Hedge Fund Investors: 5
New York-based REIT BRT Apartments Corp (NYSE:BRT) ranks sixth in our list of the stocks insiders are buying in April 2024. BRT Apartments Corp’s (NYSE:BRT) CEO Jeffrey A Gould on April 3 bought 24,598 shares of BRT Apartments Corp (NYSE:BRT) at $16.85 per share. Since then through April 7 the stock price is almost flat. In addition to BRT, insiders are also buying Dollar Tree Inc (NASDAQ:DLTR), SentinelOne Inc (NYSE:S) and Simon Property Group Inc (NYSE:SPG).
BRT’s management highlighted some important points during an earnings call last month:
“I want to highlight the ongoing simplification of the business that we started in 2021 by taking full ownership of a majority of our properties, the improvement in our balance sheet and the disciplined approach to our capital allocation. We do not have any significant mortgage debt maturities until early 2026 and pulling back on acquisitions in the past year and investing disposition proceeds to repurchase $16.7 million of shares during the year and to date in 2024 were the right decisions.
We made it our priority to focus on property operations and look to maximize portfolio performance where possible. It made for a relatively quiet year, but an important one, nonetheless. While we’re not providing specific earnings targets, the 2024 outlook we provided in our earnings release last night outlines our views on portfolio operations, transactions and other moving parts of the P&L. The big takeaways are that operational environment we’re anticipating this year is much like other operators. New supply is expected to impact the ability to grow rents. There will be continued pressure on occupancy and the ongoing inflationary headwinds are expected to impact operating margins. We intend to prioritize stabilizing occupancy this year with a view to being more constructive on potential transaction activity later in the year.
Long term, we’re in the right region in the Sunbelt. We will be aggressive in how we manage the portfolio to earn what we anticipate will be a challenging 2024, but we will remain very patient on asset growth. We believe this strikes the right balance to position us for better growth in 2025 and 2026.”
Read the full earnings call transcript here.
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Disclosure. None. Insiders are Amassing These 10 Stocks in April was initially published on Insider Monkey.
