A simple but effective way to decide on which stocks to buy is to watch what the insiders are doing.
Insiders are people who have access to confidential information about a company. They include people like the corporate officers and members of the board of directors.
In the past, there were many instances of insiders using this information to take advantage of investors who don’t have access to it. For example, suppose news is going to come out that will drive the price of a stock higher. The insiders could go into the market and buy shares from someone who doesn’t know about the news.
Or if the news will cause the share price to plunge, the insiders could sell their shares to unsuspecting investors before the news becomes public.
To prevent this type of illicit activity, the SEC has established regulations. One is that when an insider buys or sells their stock, they have to publicly disclose it.
That’s where we can get our clue for a possible investment. If a stock has seen a significant selloff and the insiders start buying it, there’s a good chance that the insider thinks the selling has been an overreaction.
The following seven stocks have been beaten down recently, and the insiders have been buying.
- Wendy’s Company (NASDAQ:WEN)
- Blue Apron (NYSE:APRN)
- Walmart (NYSE:WMT)
- Humana (NYSE:HUM)
- Pool Corporation (NASDAQ:POOL)
- Evofem Biosciences (NASDAQ:EVFM)
- Clearway Energy (NYSE:CWEN)
Stocks With Insider Buying: Wendy’s Company (WEN)
The Wendy’s Company is a fast food restaurant chain headquartered in Dublin, Ohio.
Like with many other restaurants, the Covid-19 pandemic reduced the number of customers that Wendy’s serviced last year. As Wendy’s said in its recent earnings release, “The increase in Company-operated restaurant margin was primarily the result of a higher average check and lower insurance costs. The increase was partially offset by customer count declines as a result of the COVID-19 pandemic and labor cost increases.”
This could be a reason why the share price has trended lower over the past six months.
As you can see on the above chart, in October shares traded around $25 a share. Now they are trading around $20 a share.
E.J. Wunsch is an officer of the company. This insider must think the shares are undervalued. On March 5 Wunsch bout 7,500 shares at an average price of $18.97. This was investment of over $140,000.
The Street also believes shares are currently undervalued. About 16 research firms follow Wendys. The consensus is split between buy and hold, and the average price targets is around $25 a share.
Blue Apron (APRN)
Blue Apron Holdings has been offering a subscription service that delivers original recipes and fresh and seasonal ingredients to its customers since 2012. Its headquarters are in New York, New York.
On Feb. 18 the company reported its Q4 and full year earnings. And as you can see on the above chart, since then the shares have trading significantly lower. Before the release shares traded above $11 a share. Then they fell for that 35% all the way down to $7 a share.
Linda Kozlowski is the president and CEO of Blue Apron. She must think the selloff is overdone because she just made a significant personal investment of more than $75,000. On March 8 Kozlowski bought 10,700 shares at $7.04 per share.
Only two of the major Wall Street firms follow this company, one calling it a buy and one calling it a hold, with an average $10.25 target price. That is more than 20% higher than where shares are currently trading.
Chart by TradingView
Walmart is the largest retailor in the world, with a market capitalization of about $378 billion.
Insiders may sell their shares in a company for a number of reasons. They may be looking to buy a house, or pay a college tuition. Or maybe they are just looking to diversify their assets. Because of this insider selling may not be a good signal.
But there is only one reason why an insider would buy. They believe that the shares are undervalued and they will make money.
As you can see on the above chart, since January shares of WMT have dropped by about $20. They are currently trading around $133 a share.
Randall Stevenson is a director of Walmart. He must like the stock at current prices because he just made a personal investment of over $1 million. On March 8 he reported buying 7,725 shares at an average price of $129.63.
Humana is a health and well-being company in the United States that was incorporated in 1964 and is headquartered in Louisville, Kentucky.
As you can see on the above chart, as recently as January shares of HUM traded around $450 a share. Since then shareholders have suffered. The shares went into a steep decline before finding a bottom around $380.
Jorge Mesquita is a director of Humana. He decided to take advantage to the selloff to make a significant personal investment. On March 8 he bought 375 shares at an average price of $403.37. This was an investment of more than $150,000.
The Street agrees that the company is undervalued at the current share price. Humana is covered by about seven research firms. The consensus rating among them is a strong buy. The average target price is $471 a share, about 15% higher than the current price.
Pool Corporation (POOL)
Pool Corporation sells swimming pool supplies and equipment, and related leisure products in the United States and internationally. Pool Corporation was incorporated in 1993 and is based in Covington, Louisiana.
As you can see on the above chart, in January shares of POOL were trading around $390 a share. Since then, they have trended lower and are now trading around $340 a share.
Peter Arvan is the president and CEO of the company. He must believe that there will be better times ahead for the stock. On March 5 he reported buying 500 shares at $316.03 a share. This was a personal investment of about $158,000.
The Street thinks this was a good investment. Four firms follow POOL. They’re split between buy and hold, and the average target price is $388 a share. This is about 12% higher than where they are currently trading.
Evofem Biosciences (EVFM)
Evofem Biosciences is a biopharmaceutical company that develops and sells various products to address unmet needs in women’s sexual and reproductive health. The company is headquartered in San Diego, California.
As you can see on the above chart, the share price of Evofem has suffered a steep decline. It lost more that 50% of its value when the price dropped from $5 to under $2.50. This was the result of a disappointing earnings call. Saundra Pelletier is the CEO of Evofem. She bought 45,249 shares of EVFM on March 9 at an average price of $2.28 a share. The total cost of this investment was $103,168.
Wall Street also believes that the stock is significantly undervalued at current levels. Firm firms follow it and the consensus rating is a strong buy, The average target price is $7 a share. That is about 60% higher than where the shares are currently trading.
Clearway Energy (CWEN)
Clearway Energy is in the renewable energy business. Clearway was incorporated in 2012 and its headquarters are in Princeton, New Jersey.
Like the shareholders of many companies in the energy industry, Clearway shareholders have suffered as of late. As you can see on the chart, in January they were trading for over $36 a share. Since then, they have trended lower and are now trading around $28. This is a loss of more than 20% in just two months.
Christopher Sotos is the chief executive officer of Clearway Energy. He must believe that the selloff is over done because he just made a substantial personal investment. On March 4th he paid $26.26 a share for 2,000 shares. This was an investment of more than $50,000.
The Wall Street firms to follow Clearway and produce research on it believe the stock is a hold, but their average target price is $30 a share– about 5% higher than where it is currently trading.
At the time of this publication, Mark Putrino did not have any positions (either directly or indirectly) in any of the aforementioned securities.