In this article, we will take a detailed look at Insiders are Buying These 10 Best-Performing Stocks in 2024. If you want to skip our detailed analysis and see the top 5 stocks in this list, click Insiders are Buying These 5 Best-Performing Stocks in 2024.
Exactly what motivates insiders to buy or sell their company shares? Can outsiders time the market using publicly available insider trading data? Over the past several decades researchers have been able to find several patterns in corporate insider trading activity, which, fortunately for common investors, provide a treasure trove when it comes to unlocking the secrets of insider trading.
Insiders Have “Anchoring Bias”
For example, several research papers have established that insiders, like many other investors, have an “anchoring bias” due to which they sell their company shares at 52-week highs and buy them at 52-week lows. A research paper titled Behavioral Biases of Informed Traders: Evidence from Insider Trading on the 52-Week High, written by Eunju Lee and Natalia Piqueira, said that investors usually perceive 52-week high as a “price resistant level” and an indicator of a “price rally.” Insiders, like average investors, take 52-week high levels as an opportunity sell their stocks and make profits. The research paper gives an example of this anchoring bias in action. For example, TJX stock neared its 52-week highs in September 2006. That’s when seven insiders at the company sold $40 million worth of TJX shares during that month.
Pay Attention When Insiders Buy High, Sell Low
But there’s a catch. Insiders dance to the anchoring bias when they don’t have any special insider information. However, sometimes insiders are seen to make counter-intuitive stock purchases. Suppose a stock is nearing its 52-week highs, and its insiders begin to buy the stock. Academic research shows this is a positive signal and outsiders can use this information to their advantage. Eunju Lee and Natalia Piqueira said that when insiders buy their own company stock when it’s near 52-week highs, the stock would have higher chances of positive returns in the future.
Insider Buying and Momentum Investing
Another reason why investors should pay attention to stocks seeing insider buying when they are already performing well is momentum investing. Countless research papers have established that the market behavior is not random, and you can use data and past behavior to predict future returns to some extent. A research paper entitled The 52-Week High and Momentum Investing, authored by Thomas J. George and Chuan-Yang Hwang, talks about a “self-financing strategy” that buys the top 10% and sells the bottom 10% stocks to produce 1% in profits every month.
Photo by AlphaTradeZone
But why do stocks with new highs could perform even better in the future? Here is an important excerpt from the paper:
“We find that nearness to the 52-week high is a better predictor of future returns than are past returns, and that nearness to the 52-week high has predictive power whether or not stocks have experienced extreme past returns. This suggests that price levels are more important determinants of momentum effects than are past price changes. An explanation of behavior that is consistent with our results is that traders use the 52-week high as a reference point against which they evaluate the potential impact of news. When good news has pushed a stock’s price near or to a new 52-week high, traders are reluctant to bid the price of the stock higher even if the information warrants it. 1 The information eventually prevails and the price moves up, resulting in a continuation. Similarly, when bad news pushes a stock’s price far from its 52-week high, traders are initially unwilling to sell the stock at prices that are as low as the information implies. The information eventually prevails and the price falls. In this respect, traders’ reluctance to revise their priors is price-level dependent. The greatest reluctance is at price levels nearest and farthest from the stock’s 52-week high. At prices that are neither near nor far from the 52-week high, priors adjust more quickly and there is no pronounced predictability when information arrives.”
Performance of Insider Buying and Momentum Stock Investing Strategies This Year
How are momentum stocks and those seeing insider buying doing this year?
iShares MSCI USA Momentum Factor ETF (BATS:MTUM), which invests in stocks with relatively higher price momentum, is up about 19% year to date through May 10, compared to 10% gain posted by S&P 500 (SPY). On the other hand, Catalyst Insider Buying C (INSCX), which invests in large capitalization U.S. companies that are experiencing significant insider buying, is up 25% YTD.
Methodology
For this article we first used a stock screener to identify stocks that have posted strong returns in 2024 so far. From these we chose companies that saw heavy insider buying activity this year. We then selected 10 of these stocks with the highest stock price gains year to date. Why should you pay attention to insider trading activity? 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.
10. Martin Midstream Partners LP (NASDAQ:MMLP)
YTD Stock Performance: 19.11%
Martin Midstream Partners LP (NASDAQ:MMLP) shares are up 16% so far this year. On April 9, Robert D. Bondurant, Martin Midstream Partners LP’s (NASDAQ:MMLP) CEO, bought 1,603 shares at $2.65 per share. Since then the stock has gained about 13%. On May 7, the CEO again bought 980 shares of his company at $2.89 per share.
9. Kemper Corp (NYSE:KMPR)
YTD Stock Performance: 22.59%
Insurance company Kemper Corp’s (NYSE:KMPR) stock is up 21% so far this year through May 9. Earlier this month Kemper Corp (NYSE:KMPR) saw insider buying activity when Alberto J. Paracchini, a director at Kemper Corp (NYSE:KMPR), bought 425 shares at $58.54 per share. The transaction took place on May 3. Since this transaction the stock price has gained about 2.4%.
8. Hubbell Inc (NYSE:HUBB)
YTD Stock Performance: 24.62%
Electrical and electronic products company Hubbell Inc (NYSE:HUBB) shares have gained about 21% so far this year through May 9. On May 3, Neal J. Keating, a director at Hubbell Inc (NYSE:HUBB), bought 500 shares at $378.77 per share. Since this transaction the stock has gained about 4.3%.
7. AXIS Capital Holdings Ltd (NYSE:AXS)
YTD Stock Performance: 27.39%
Specialty insurance and reinsurance company AXIS Capital Holdings Ltd (NYSE:AXS) is one of the best-performing stocks with insider buying activity. The stock has gained about 26% this year through May 9. On May 6, Marston W. Becker, a director at AXIS Capital Holdings Ltd (NYSE:AXS), snapped up 3,025 AXIS shares at $66.58 per share. The total worth of this transaction was $201,405. Since this transaction the stock price has gained about 4.7%.
Earlier this month, the company talked about guidance and expectations in its Q1 earnings call:
“A higher percentage of the rest of the year renewals is in liability lines where we are taking a more cautious and selective approach. And we would expect the full year growth for reinsurance to be in the mid-single-digit range. Net written premiums declined versus prior year quarter as we are ceding more business to our strategic capital partners.
We would expect a ceding percent of approximately 35% to be maintained throughout the year. The reinsurance combined ratio was 95.8%, above what we consider normalized in the low 90s range. The ex-cat and weather loss ratio of 68% is up 5 points from prior year, being driven by 2 points of upward movement due to the impact of exiting the catastrophe and property lines of business and 3.5 points due to the Francis Scott Key bridge tragedy in the quarter. I highlight that our acquisition cost ratio of 23% is higher than the prior year quarter due mostly to the impact of profit commissions associated with loss sensitive features. This year, profit commissions added about a point to the acquisition cost ratio in the quarter, and we would expect a normalized 22% for the remainder of the year.
Moving on to investments. We had $167 million of net investment income, up 25% from the prior year in the quarter. The overall outlook is positive as our book yield on fixed income securities was 4.3% at quarter end, while the new money yield was 5.6%, and we continue to generate strong cash flow. Further, in the quarter, we returned $100 million to shareholders through $38 million of common dividends and $62 million of share repurchases.”
Read the full earnings call transcript here.
6. Encompass Health Corp (NYSE:EHC)
YTD Stock Performance: 28.57%
Encompass Health Corp (NYSE:EHC) ranks sixth in our list of the best-performing stocks insiders are piling into. The stock is up 27% so far this year. On May 3, 2024, Greg D. Carmichael, a director at Encompass Health Corp (NYSE:EHC), bought 2,000 shares at $83.73 per share. Since this transaction the stock is up 2.50%.
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Disclosure: None. Insiders are Buying These 10 Best-Performing Stocks in 2024 was initially published on Insider Monkey.
