We recently published a list of 10 Small–Cap Stocks Insiders Are Selling Recently. In this article, we are going to take a look at where Two Harbors Investment Corp. (NYSE:TWO) stands against other small–cap stocks insiders are selling recently.
Why are some investors focusing on stocks with smaller market capitalizations? Among some of the reasons are diversification of their portfolios, because small-cap stocks usually operate in different industries than large-cap companies. Another reason is the share price, which is often lower than that of companies with larger market capitalization (above $10 billion), making them more affordable.
Some investors’ strategy is finding nascent companies with strong growth potential, which can bring high returns once the companies have grown. Even though small-cap stocks often carry higher risks and are more prone to market volatility, they also offer investors more room for growth.
What are some ways to assess small-cap stocks that are worth investing in? While there’s no single simple or complicated rule that investors can follow to achieve secure results, some strategies can help. One strategy is to keep track of insider trading activity. Insiders or, in other words, people in high positions within companies, such as CEOs, CFOs, directors and other executives have valuable insights into the company’s strategic moves, plans, and initiatives. A CEO’s investment in a company’s stock can sometimes signal strong confidence in the company’s future.
Does this mean that it is a bad sign for the company when insiders sell their shares? Not necessarily; just like insider buying activity doesn’t always mean stock is heading for growth. When insiders are selling their shares, it can sometimes mean that the management is losing confidence. On the other hand, it also happens that large shareholders just want to trim their holdings to more appropriate position sizes based on the risk/reward. Insiders can also decide to sell their shares due to personal financial reasons that have nothing to do with the company.
While both insider selling and buying can be driven by various motives, it’s important to consider these moves within the broader context of the company’s fundamentals, industry trends, and overall market conditions.
To identify the 10 large-cap stocks insiders are selling recently, we considered only stocks with a market capitalization of between $250 million to $2 billion. We first used Insider Monkey’s insider trading stock screener and looked for stocks with at least two insiders selling over the last two months.
With each stock we note the number of recent insider sales and the company’s current market capitalization. But why is it important to follow insider activity? Our research has shown that we can outperform the market by imitating the top stock picks of the best hedge funds, focusing on insider trading and stock picks from hedge fund investor newsletters and conferences. Our quarterly newsletter’s strategy selects 14 small-cap and large-cap stocks every quarter and has returned 275% since May 2014, beating its benchmark by 150 percentage points (see more details here).
Aerial view of a standard residential neighborhood with multiple rows of relatively new houses representing the company’s real estate investments.
Two Harbors Investment Corp. (NYSE:TWO)
Number of insiders selling: 7
Market capitalization: $1.337B
The eighth small-cap stock that insiders have been ditching recently is a real estate investment trust (REIT) focusing on residential mortgage-backed securities (RMBS) and other real estate-related assets. With its operational platform, RoundPoint Morgage Servicing LLC, it is considered among the biggest servicers of conventional loans in the country. Two Harbors Investment Corp. (NYSE:TWO)’s investment strategy is designed with the goal of bringing returns across various market environments. More than 60% of its capital is allocated to hedged MSR, and the rest of its capital is allocated to hedged RMBS, with the idea of minimizing portfolio exposure to fluctuations in mortgage spreads.
In January seven insiders among which are the company’s CEO, and CIO sold a total of around $911,753 worth of Two Harbors shares, at an average price of $11.21. The stock has gained 19.4% since then and it is now trading at $13.39 per share.
As many as eight Wall Street analysts have an average “Buy” rating on Two Harbors stocks, with a 12-month price target of $13.63, as per data from TipRanks.
For the fourth quarter ended December 31, 2024, Two Harbors (NYSE:TWO) incurred a comprehensive loss of $1.6 million, or $0.03 per weighted average basic common share. The company also declared a quarterly dividend of $0.45 per share.
While seven investors have sold some of their holdings in Two Harbors stocks, some institutional investors like Vanguard Group Inc. and Allspring Global Investments Holdings increased their ownership in the fourth quarter.
Overall, TWO ranks 8th on our list of small–cap stocks insiders are selling recently. While we acknowledge the potential of TWO, our conviction lies in the belief that AI stocks hold greater promise for delivering higher returns, and doing so within a shorter time frame. If you are looking for an AI stock that is more promising than TWO but that trades at less than 5 times its earnings, check out our report about the cheapest AI stock.
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Disclosure: None. This article is originally published at Insider Monkey.