In this article, we will take a detailed look at Largest Insider Buys: Top 10 Stocks. If you want to skip our detailed analysis and see the top 5 stocks in this list, click Largest Insider Buys: Top 5 Stocks.
Why and when do insiders buy their company shares? Can you use publicly available insider trading data to your advantage and mimic what insiders are doing to make money in the stock market? Researchers have been trying to answer these questions for decades, and we have a treasure trove of research papers and studies to understand this topic from various angles. One of the most important aspects insider trading researchers revealed over the past few years is that insiders are often contrarian investors. Thanks to the strong informational advantage, they know the true intrinsic value of their company stock. As a result, when a company’s stock jumps after positive news, insiders may see it as a selling opportunity while the broader market buys the stock. In a research paper titled Do insider trades reflect both contrarian beliefs and superior knowledge about future cash flow realizations, Joseph D. Piotroski and Darren T. Roulstone shared some extremely interesting insights about insider trading. The paper established that insider trades are positively correlated to companies’ stock performance in the future as well as their book-to-market ratio. On the other hand, insider trades are inversely related to recent returns. The paper said that insiders’ tendency to be contrarian investors and them having “superior knowledge” has “incremental explanatory power for insider purchases, suggesting that insiders trade on the basis of both contrarian beliefs and private information about future cash flow news.”
Insider Trading and “Glamour Firms”
Should you following insider trading activity of growth stocks or value stocks? The research uses the term “glamour firms” for growth companies that often get a lot of market attention. The research paper said that insiders at “glamour firms” often sell their company shares after strong earnings reports because they know their stock is becoming overvalued and growth catalysts which the market is paying for are already priced in. On the other hand, when value stocks post strong news, it is taken as a signal of strong future performance.
“For value firms, the positive relation suggests that insiders use the current earnings news as a signal of strong future performance. This behavior is consistent with Piotroski’s (2000) findings that strong earnings performance in year t can be used to identify value firms withstrong subsequent returns and earnings performance …This asymmetric trading response to the current earnings innovation is consistent with insiders recognizing both differences in investor interest across glamour and value stocks and the impact investor neglect has on the informational efficiency of stock prices.”
Outsiders Should Pay Attention to Small-Cap Stocks When It Comes to Insider Buying
The research paper also found that outsiders can gain more by following insider buying activity for small-cap companies since these companies usually lack analyst coverage. Insiders at small companies often pile into their company stocks before major positive news and earnings. This activity often goes unnoticed by the market due to lack of coverage. Outsiders can keep an eye on insider trading activity at smaller companies and gain an advantage over others.
What Insiders are Up in 2024?
Moving beyond academic research, does following insider trades to beat the market actually work? AdvisorShares Insider Advantage ETF (SURE), which invests in companies that are trying to reduce their float by insider buying and share buybacks, is up about 8.5% year to date through May 6, keeping up with the S&P 500’s gain of 9%. Over the past one year the ETF is up 28%. As of May 6, the Insider Buy/Sell Ratio is 0.38, above its median value of 0.34. CDT Insider Sentiment jumped to “High” in March and touched levels not seen since the end of 2023. CDT Capital Management also highlighted the contrarian nature of insiders while talking about the recent jump in insider sentiment:
“We note that March’s jump in sentiment amid a market rally lays in stark contrast to the group’s notorious reputation as astute contrarian investors. Typically, we observe insiders that are eager to leverage their information advantage to catch market bottoms or endorse an early rally, but they were conspicuously late to this dance. We suspect that the out of sync insider behavior has to do with the composition of the market.”
Photo by Mohamed Hadji on Unsplash
Methodology
For this article we used Insider Monkey’s insider trading stock screener to find stocks with heavy insider buying activity over the past two weeks. From these stocks we chose 10 companies with the highest amount of insider buying in terms of dollar value. Some top names in the list include Delta Air Lines, Inc. (NYSE:DAL), Enphase Energy Inc (NASDAQ:ENPH) and Skyworks Solutions Inc (NASDAQ:SWKS). 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. Heartland Financial USA Inc (NASDAQ:HTLF)
Number of Hedge Fund Investors: 8
Truckload carrier company Heartland Financial USA Inc (NASDAQ:HTLF) is one of the stocks with heavy insider purchases in May. On May 1, Heartland Financial USA Inc’s (NASDAQ:HTLF) CEO Michael J. Gerdin purchased 107,605 shares at a price of $10.74 per share. Since May 1 through the market close on May 3, the stock is up 1.7%.
9. Lumen Technologies Inc (NYSE:LUMN)
Number of Hedge Fund Investors: 17
Lumen Technologies Inc (NYSE:LUMN) saw insider buying activity last week when its CEO Kate Johnson piled into 750,000 shares of Lumen Technologies Inc (NYSE:LUMN) at $1.28 per share. The transaction took place on May 2. Since them through the market close on May 3, the stock was up 2.33%.
Longleaf Partners Fund stated the following regarding Lumen Technologies, Inc. (NYSE:LUMN) in its fourth quarter 2023 investor letter:
“Lumen Technologies, Inc. (NYSE:LUMN) – Global fiber company Lumen was the top detractor for the year, and we sold our position in the first half, when it became clearer the new management team under CEO Kate Johnson would not pursue a strategic path to monetizing Lumen’s consumer business. Lumen represented a permanent capital loss for the Fund, a significant opportunity cost for the portfolio and a disappointing long-term mistake. Lumen has reinforced the importance of limiting overweight positions in the portfolio, being cautious of leverage and value declines, and fully re-underwriting a case – and being willing to move on – when the people and/or underlying facts change.”
8. Bancorp Inc (NASDAQ:TBBK)
Number of Hedge Fund Investors: 23
Bancorp Inc (NASDAQ:TBBK) is one of the stocks with latest insider purchases in May. On May 1, 2024, Mark Leo Connolly, who is the EVP and Head of Credit Markets at Bancorp Inc (NASDAQ:TBBK), piled into 20,000 of Bancorp Inc (NASDAQ:TBBK) at $31.07 per share. Since then the stock is up 2%.
In addition to TBBK, Delta Air Lines, Inc. (NYSE:DAL), Enphase Energy Inc (NASDAQ:ENPH) and Skyworks Solutions Inc (NASDAQ:SWKS) are also seeing insider buying this month.
7. Leggett & Platt Inc (NYSE:LEG)
Number of Hedge Fund Investors: 24
Bedding solutions company Leggett & Platt Inc (NYSE:LEG) saw insider buying this month as its EVP and Chief Strategic Planning Officer Ryan Michael Kleiboeker on May 2 bought 10,000 shares of Leggett & Platt Inc (NYSE:LEG) at $13.39 per share. Since then through market close of May 3 the stock gained about 2.88%.
Like Delta Air Lines, Inc. (NYSE:DAL), Enphase Energy Inc (NASDAQ:ENPH) and Skyworks Solutions Inc (NASDAQ:SWKS), LEG is a stock seeing insider buying in May.
6. Hexcel Corp (NYSE:HXL)
Number of Hedge Fund Investors: 27
Hexcel Corp (NYSE:HXL) makes carbon fiber reinforcements and other composite materials for the aerospace industry. It is one of the stocks with latest insider purchases. Hexcel Corp’s (NYSE:HXL) CEO Tom Gentile on May 1 piled into 15,000 shares of Hexcel Corp (NYSE:HXL) at $66.25 per share. Since then through May 3 market close the stock is up 2.8%.
Of the 933 hedge funds tracked by Insider Monkey, 27 hedge funds had stakes in Hexcel Corp (NYSE:HXL) as of the end of 2023.
TimesSquare Capital U.S. Mid Cap Growth Strategy stated the following regarding Hexcel Corporation (NYSE:HXL) in its fourth quarter 2023 investor letter:
“In the Industrials sector we gravitate toward business service companies, those focused on automation & efficiency improvements, and essential infrastructure services. Hexcel Corporation (NYSE:HXL) develops and produces carbon fibers, structural reinforcements, and composite materials for use in commercial aerospace, space & defense, and industrial applications. The commercial airline industry needs more aircraft to meet increasing demand. Hexcel’s components are included in production assemblies from Boeing and Airbus.”
Click to continue reading and see Largest Insider Buys: Top 5 Stocks.
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Disclosure. None. Largest Insider Buys: Top 10 Stocks was initially published on Insider Monkey.
