Generally, insiders have an edge over other investors because insiders know more about their companies than do outsiders. That’s why insiders aren’t allowed to trade based on material non-public information. Most insiders don’t break the law, but some insiders push the envelope and trade on information that are in the grey area. Other insiders are great analysts and they know when to trade by using public information, which is perfectly legal. So it may be possible to beat the market by imitating all insiders’ purchases. However, insider trading is generally not a profitable strategy unless several insiders are purchasing around the same time. Academic studies have shown that insider purchases outperform the index fund by more than 7% per year when there are several insiders buying.
For the past months, Insider Monkey, your source for free insider trading data, has been compiling the list of stocks that several insiders are buying like crazy. Here’s the list of 5 stocks we published last month and how they performed since.
1. TranSwitch Corp (TXCC): TranSwitch went up incredibly since our last report on March 17. TXCC rallied until it climbed to $5.50 on April 11th, making its return for Insider Monkey as high as 106%! Then, it leveled off, but is still up 52%.
2. Town Sports Intl (CLUB): Town Sports continued to climb up last month. We initially reported on insider purchases at CLUB in November. The stock gained more than 80% since then. Since our last report in March, the stock also performed well and gained 20.8%. There have been repeated insider purchases in CLUB since November. The stock appreciates as consumer sentiment and spending improves.
3. Ligand Pharma (LGND): Imitating the substantial insider purchases we reported paid off. The stock rose 11% in the week following the latest insider buying and then pulled back. LGND jumped again by 6.25% during the last seven trading days, beating the market averages. Overall, the stock gained more than 10% since March 17th.
4. Exar Corp (EXAR): EXAR underperformed the market by around 3 percentage points since we reported insider purchases on March 17th. However, insider purchases went on last month. EXAR surged 7.8 % during the five days following Soros’ latest purchases on April 1st, before levelling off. It returned as much as 15% for investors who monkeyed George Soros’s large transactions last September. George Soros has been buying this stock, but the stock keeps disappointing investors who imitated Soros’ purchases.
5. Central European Distribution Corp (CEDC): CEDC declined more than 9% since our last report. The latest transactions we reported were above the $12.5 level, and another insider purchased 10,000 shares at $10.53 this month. After the recent insider purchase, the stock seemed to stop its downward trend and stabilise.
Overall, three of our stock picks beat the market. An equal weighted portfolio of these five stocks would have returned 15% in one month. Only CEDC had negative returns. Of course, this is just a very small sample and does not prove or disprove the credibility of monkeying insider purchases. Insider Monkey, your source for free insider trading data, will keep sharing recent academic studies with you, so that you can do your own research. We will keep providing updates on stocks insiders buy like crazy, although it might be better to follow them in real-time if one is monkeying insider transactions.
Here are the 7 stocks insiders were buying during the last couple of weeks:
Adcare Health Systems (ADK): Insiders are buying modest amounts of ADK during this month. The latest insider transactions were at $4.80 and $4.75 per share. After it rallied in March, the share price has not been moving that much following the insider purchases. The stock closed at $4.91 on Thursday, declining 0.81% in April.
Presidential Life Corp (PLFE): There were several insider purchases since the end of March. Following the insider purchase at $9.37 per share on March 30, PLFE rose 10.25% in a week. The insiders took advantage of pullbacks last week, and kept buying the stock. The latest insider purchase last week was at $10.18. Chuck Royce owns around 1% of PLFE’s outstanding shares. Royce has been investing successfully in small cap stocks for nearly 40 years.
Central European Distribution Corp (CEDC): This was one of the stocks we recommended in our report last month. In addition to a large purchase by William S. Shanahan last month, Eugene Marek Forysiak bought 10,000 shares at $10.53 on April 12th. Since this purchase, the stock stopped its down trend and jumped more than 5%. The stock price is still down 50% compared to its mid-February levels. David Dreman had $29 Million in CEDC at the end of December. Rob Citrone’s Discovery Capital, Phillippe Jabre’s Jabre Capital, and Leon Cooperman’s Omega Advisors had smaller positions in this stock as well.
Nevada Gold & Casinos (UWN): Insiders have been buying since the middle of March when the shares were around $1.09, and the stock started an uppward trend in the beginning of April. However, the insiders kept on buying over the $1.40 level during the past week. This isn’t a very liquid stock though.
Federal Signal Corp (FSS): There were several insider purchases reported since March 21. The stock rose 11% in a day following two separate insider purchases at $5.66 per share. There were four other insiders buying this stock during the last couple of weeks. The latest insider transaction was at $6.51 on April 11, and the shares are currently trading around that level. Chuck Royce also owned 1.5% of this stock’s outstanding shares at the end of December.