From the Editor: We've been highlighting Sid's research for you again because six of his first seven recommendations are already heading higher. And his latest recommendation could climb by more than 1,000%. You've seen the charts, so today, let's look at the "sparks."
We've already reviewed a number of the seven catalysts, or "sparks," I look for in a company before I recommend it to subscribers of my Small-Cap Rocket Alert.
Finding just one of these "sparks" can lead you to extreme upside potential… But identifying two or more "lighting up" the same stock is even better.
So today I want to give you an eighth spark – one that just unveiled a potential 1,300% biotech gain for my readers last week. Then I'm going to show you how to find it on your own.
It's easy, once you know how to read this form…
"Spark" No. 8: Insider Buying… of a Very Special Kind
Insider buying and selling gets a lot of attention. But we're only concerned with a very special type of transaction…
Here's the skinny.
If you're a business owner, chances are you're intimately familiar with how your company is currently performing – and more importantly – how it's likely to perform in the future.
That's because you are uniquely tuned into every aspect of the product and management cycle. You know the "resource stack" and, chances are, exactly what's needed to make money.
Presumably, as the thinking goes, you are an insider who knows better than company outsiders what your potential is on any given day.
I've researched thousands of companies and found that to be absolutely true.
When insiders start scooping up shares, they may as well be waving a huge green flag that says "x marks the spot."
Now obviously there's a lot of gamesmanship when it comes to insider buying. You can't just take the fact that senior management is picking up shares at face value. Their actions have to be tied to something critical – like pending clinical trials results, or new patents, or even materials changes – to really be effective.
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.
Imagine doing that year after year.
An extra 8.9% may not sound like much, but it adds up very quickly.
Long story short, that was exactly the kind of opportunity I found recently for members of the Small Cap Rocket Alert family… an insider shelling out $20 million to buy shares of a small-cap biotech firm shortly before the company is scheduled to update data of an ongoing clinical trials program for one of its leading drug candidates.
The reverse is also true.
The good professor's research shows that stocks historically underperform the markets by 5.4% a year when insiders are selling.
If you remember Enron's spectacular flameout like I do, chances are you remember that insiders were dumping their shares months ahead of time faster than Miley Cyrus sheds her clothing.
That was a huge red flag at the time, yet an overwhelming number of analysts following the stock kept their "buys" in place right to the very end!
So how do you know what those in the know are doing?
About the Author
Sid is the investment community's best-kept secret. Since 2009, he's served at Money Map Press as Director of Research, analyzing thousands of securities and profit opportunities for subscribers. He's an expert in identifying "alpha" potential in a wide variety of industries, but especially the small-cap sector, where he's discovered a pattern of profits that's almost foolproof.