Insiders sell for all sorts of reasons, but there is only one motivation for insider buying.
After all, CEOs and directors might engage in insider selling because their stock options are about to expire or they need to pay taxes. Some insiders even sell to diversify their personal holdings, which is actually a good sign. (Any CEO foolish enough to have all his net worth tied up in a single security isn’t fit to run a public company.)
But insider buying is another matter entirely. There is only one reason for an insider to up his stake in the company: He or she is bullish on its prospects and share price.
Insiders, of course, have a unique view of what’s going on in their companies and industries. If they’re buying more stock, it’s probably because they know something you don’t — and that something is likely very good.
We screened the market for recent bullish insider buying — that is, cases where the stock rallied sharply soon after the insider made purchases in the past.
True, looking at share performance after historical insider buying isn’t a sure thing — nothing is — but investors are better off knowing about it. If shares rose 30% in six months after the last two times a CEO bought stock in his own company … well, there’s a good chance the stock will rise after his latest purchase too.
Based on past purchases, here are five stocks insiders love that rally on insider buying:
Insider Buying: Delta Air Lines (DAL)
The Delta Air Lines (DAL) stock chart looks more like a rocket than an airplane. Shares in the carrier are up more than 250% since the end of 2012, but based on some recent insider buying, they look to have a lot more climbing to do.
DAL insiders bought a total of $193,000 in stock in the most recent quarter, according to Thomson Reuters Stock Reports. Not only is that far above the second-quarter average of $60,000, but it represents the highest buy total in five years.
Most interesting is what DAL director and former Yahoo (YHOO) chairman Roy Bostock has been up to. He bought another 2,000 shares in DAL in the past month. True, this is based on a limited history, but the last two times Bostock made insider buys, DAL stock rose an average of 46% in the next six months, according to Thomson Reuters data.
Insider Buying: Prosperity Bancshares (PB)
Chances are Prosperity Bancshares (PB) — a midcap regional bank stock — is probably off most investors’ radars. And it sure hasn’t done much to warrant anyone’s attention recently: PB stock is off about 5% for the year-to-date.
But that underperformance looks like it’s about to change — at least based on accelerating insider activity. PB stock just saw its highest level of second-quarter insider buying in five years. Indeed, total buys came to more than $113,000. On average, insiders buy only about $23,000 worth of PB stock in the second quarter.
What’s especially bullish is that all of the second-quarter insider buying was made by Vice Chairman H.E. Timanus Jr., who picked up 2,000 shares in the last 30 days. That’s because the last five times Timanus bought more shares, PB stock gained an average of 31% within six months.
Insider Buying: MarkWest Energy Partners (MWE)
MarkWest Energy Partners (MWE) is another stock putting up disappointing numbers in 2014. Shares in this natural gas processor and distributor are down 5% for the year-to-date, and trouble seems to be piling up.
Analysts like MWE for its diverse, high-quality portfolio of midstream assets, but collapsing energy prices have been hurting cash-flow stability. Anything that messes with the cash flows of a master limited partnership is sure to cause anxiety.
But better times must be ahead based on what the insider buying says. Keith Bailey, who retired from the company’s board of directors in April, bought nearly 4,000 shares in MWE in May. The last 11 times Bailey bought MWE stock, it went on to rise an average of 27% in the next half-year.
Insider Buying: Hornbeck Offshore Services (HOS)
Something good must be percolating at Hornbeck Offshore Services (HOS) given the second-quarter gusher of insider buying. In an average second quarter, insiders buy HOS stock worth less than $200,000. In the most recent Q2, they bought HOS stock worth $2.4 million.
Like a lot of oilfield-services companies, HOS has been struggling with stagnant energy prices and their effect on demand for new drilling. However, some analysts think results bottomed in the last quarter, and the way insiders are buying, the Street might be right.
CEO Todd Hornbeck was the largest buyer of HOS stock in the last month by far, but it’s the 3,000 shares picked up by COO Carl Annessa that’s really interesting. The last two times the executive bought HOS stock, shares gained an average of 63% in the next six months.
Insider Buying: Accelerate Diagnostics (AXDX)
Accelerate Diagnostics (AXDX) stock has already doubled for the year-to-date, but based on what the smart money is doing, AXDX stock could soon come close to tripling.
The medical lab and research stock has one of the healthcare industry’s major players behind it. Larry Feinberg — through his Oracle Investment Management hedge fund — is the top holder of AXDX stock, with about a 12% stake. The thing is, every time Feinberg adds to his position, AXDX stock seems to go up — and he just bought a lot more stock.
Feinberg purchased another $5 million worth of AXDX stock in the past 30 days, good for the biggest insider buy in five years.
If that’s not bullish enough, this sure is: Historically, the past six times Feinberg purchased AXDX stock, it gained an average of 59% in the following six months.
As of this writing, Dan Burrows did not hold a position in any of the aforementioned securities.