Insider buying has been proven to have significant predictive power for stock prices - which is why we like to make a list of possible "insider" stocks to buy.
No one knows more about the condition and prospects of a business than the chief executive officer (CEO) and chief financial officer (CFO). When insiders like them buy stocks in the open market of the companies they control, the stock often outperforms the broader market for the next several years.
According to Nejat Seyhun, a professor and researcher in the field of insider trading at the University of Michigan, when insiders are buying shares in their own companies, the stock tends to outperform the total market by 8.9% over the next 12 months.
In the past month there have been some significant buys by the top two executives in some interesting companies. Let's take a look.
3 Stocks to Buy That Insiders Can't Get Enough of Now
The first "insider" stock to buy is Symantec Corp. (Nasdaq: SYMC), one of the leading internet security providers in the world.
Symantec makes a wide range of products that help individuals and businesses keep their computers and mobile devices safe from viruses and malware. The stock recently dropped sharply after the company fell short of analysts' quarterly earnings expectations, but CEO Stephen Bennett clearly disagrees with the market's opinion of the company's prospects. He got out his checkbook and added 1,000,000 shares of stock for a total cost of more than $2.2 million. He now owns 488,000 shares of Symantec stock and clearly has high expectations for the future of Symantec's stock price.
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The second company with notable insider stock purchasing is Coach Inc. (NYSE: COH). Shares fell about 18% from July 25 to Oct. 23, as analysts and investors have downgraded their expectations for the handbag and apparel maker. The company is trying to rebrand itself as more of a lifestyle company and recently introduced a new line of footwear products. It's also expanding its total retail space and plans to spend almost $300 million to increase its selling floor footprint.
Sales and profits were flat year over year in the latest quarter, but company CEO Lew Frankfort clearly thinks better times lie ahead for the company. He recently spent more than $1 million to buy 21,000 shares in the open market.
Finally, Simonds First National Corp. (Nasdaq: SFNC) is a Midwestern bank with 96 branches in Arkansas, Missouri, and Kansas. The stock has been strong this year, but CEO George Makris thinks there is additional upside ahead for the shares.
Since 2010 the company has been buying assets and loans from the Federal Deposit Insurance Corporation with a loss-sharing arrangement wherein the FDIC is responsible for 80% of losses associated with the assets. Makris is apparently a big believer of the strategy, as he has purchased stock on several occasions this year. The latest was in October, when he spent another $622,000 to buy 19,308 shares in the open market.
Now Put Insider Buying to Work for You: This Stock "Spark" Could Ignite a 1,300% Share-Price Gain - Here's How to Spot It
About the Author
Tim Melvin is an unlikely investment expert by any measure. Raised in the "projects" of Baltimore by a single mother, he never attended college and started out as a door-to-door vacuum salesman. But he knew the real money was in the stock market, so he set sights on investing - and by sheer force of determination, he eventually became a financial advisor to millionaires. Today, after 30 years of managing money for some of the wealthiest people in the world, he draws on his experience to help investors find "unreasonably good" bargain stocks, multiply profits, and build their nest eggs. Tim tirelessly works to find overlooked "hidden gems" in the stock market, drawing on the research of legendary investors like Benjamin Graham, Walter Schloss, and Marty Whitman. He has written and lectured extensively on the markets, with work appearing on Benzinga, Real Money, Daily Speculations, and more. He has published several books in the "Little Book of" Investment Series and a "Junior Chamber Course" geared towards young adults that teaches Graham's principles and techniques to a new generation of investors. Today, he serves as the Special Situations Strategist at Money Morning and the editor of Peak Yield Investor.