- Insider trading is a valuable metric for investors and can hint at future performance of these seven stocks.
- Alphabet (GOOG)(GOOGL): Co-founders’ sales accelerate, and executives joined them, but the insider trading signal remains weak.
- Lyra Therapeutics (LYRA): Insiders bought significant stakes in the clinical-stage biopharma play.
- CCC Intelligent Solutions (CCCS): Insiders and major investors are selling shares.
- Liquidia (LQDA): Insider trades show confidence, and imply a de-risked merger deal.
- Rocket Companies (RKT): The CEO is backing his enthusiasm with millions of dollars from his wallet.
- Affirm (AFRM): A major shareholder is buying the dip on AFRM stock.
- CBRE Global Real Estate Income Fund (IGR): Insiders scooped the 8.3% dividend yield recently.
Insider trading remains a highly followed leading indicator of stock performance. Insiders’ buying and selling activity on their own companies’ stocks can carry significant informative and predictive power to the market. Some of these transactions could convey trading clues investors shouldn’t ignore.
If well-informed executives and directors — who possess deeper and full information about a company’s business and its industry’s dynamics — load up on a stock, there must be something driving their enthusiasm. The same reasoning applies to insider sales, too. If well-informed insiders are selling stock in droves, why should “less-informed” investors do otherwise?
One recent example could be associated with Cathie Wood’s flagship investment traded fund, Ark Innovation ETF (NYSE:ARKK). The exchange-traded fund (ETF) saw insider sales of its constituent stocks accelerate during the second half of 2021 as founders and executives cashed out of their companies’ stock positions. Constituent companies’ insiders sold a staggering $13.5 billion worth of stock and bought just $11 million in the six months leading up to December 2021.
Although Tesla (NASDAQ:TSLA) founder Elon Musk tilted the scales with his $10.7 billion sales of Tesla stock during the review period, the trend still remains the same after excluding him as an outlier.
Insider sales were more pronounced ahead of the ETF’s painful decline. The Ark Innovation fund has since lost 37% of its value so far this year and is down by 56% over the past six months.
Insider trading activity still retains predictive power. Investors should watch these seven stocks for major insider trading clues.
|CCCS||CCC Intelligent Solutions||$9.48|
|IGR||CBRE Global Real Estate Income Fund||$8.61|
Alphabet (GOOG, GOOGL)
Alphabet (NASDAQ:GOOG)(NASDAQ:GOOGL) co-founders Larry Page and Sergey Brin are selling GOOG stock heavily, and they have been doing so for some time since resuming sales last year. Since January, the two directors have sold a combined $1.67 billion worth of Alphabet stock.
However, Page and Brin aren’t the only insiders selling right now. Chief Executive Officer Sundar Pichai and Chief Accounting Officer Amie Thuener O’Toole are selling GOOG stock this year. The CEO and CAO disposed of GOOG stock worth $25.7 million so far this year.
Brin and Page remain the two major Alphabet stockholders, controlling more than 52% of the firm’s voting power thanks to their Class B multiple voting shares. Each share accords 10 votes.
It’s not yet clear if we should read too much into the billionaires’ insider activity yet. As directors, Page and Brin are paid a nominal $1 in fees and salaries. Together with executives, they receive additional shares from Alphabet’s stock plan as share-based compensation. They may sell and liquidate some of the new shares as they vest.
Further, Google is seeking a shareholder approval vote to increase its 2021 Stock Plan share reserve by 4,000,000 shares in the upcoming June 2022 Annual Shareholders Meeting. Insiders could earn and keep selling additional shares.
The insider trading signal isn’t clear on Alphabet stock right now. Investors may wish to watch if Alphabet’s co-founders start significantly liquidating their multiple voting shares and diluting their control. The insider trading clue will become amplified then.
Lyra Therapeutics (LYRA)
Clinical-stage therapeutics company Lyra Therapeutics (NASDAQ:LYRA) experienced a surge in April as news of significant insider transactions broke out. LYRA stock has delivered a 25% return in the past month.
Insiders bought $36.5 million worth of LYRA stock during the first two weeks of April 2022. Notably, director Edward Anderson invested $9.5 million cash buying LYRA stock while the executive chair of Lyra Therapeutics’s Board of Directors, Harlan Waksal, followed with a $1 million investment in his own company’s shares.
However, both transactions pale in comparison to a $25 million insider buy from a major shareholder reported this month. Private equity fund manager Perceptive Advisors LLC acquired 5.9 million more LYRA shares to significantly increase its position to 7.9 million shares, which are held in its Perceptive Life Sciences Master Fund.
Stocks of clinical-stage pharma companies can powerfully surge once their drugs and technologies get regulatory approvals after successful trials. Insider trading activity seems to show strong conviction that something great is cooking in the LYRA innovations portfolio.
CCC Intelligent Solutions (CCCS)
Insurance economy automation and software-as-a-service (SaaS) platform provider CCC Intelligent Solutions (NYSE:CCCS) recently went public in August 2021. Insiders who backed the company during its private days are liquidating their holdings.
CCC Intelligent Solutions announced an underwritten secondary offering of common stock in April. Existing stockholders — mostly insiders — sold 20 million shares to the public during the second week of April.
The major selling shareholder was an institutional investor called Advent International, which disposed of 17.5 million shares. The seller is actually a vehicle controlled by CCCS stock Directors Eric Wei, Lauren Young and Christopher Egan. All three directors are serving insiders, and Advent International owns 60% of all CCCS outstanding shares.
Insiders may have started liquidating accumulated positions, and investors should watch out for any subsequent insider sales of CCCS stock in the near term. Recurring sales could exert significant downward pressure on the share price.
Liquidia (NASDAQ:LQDA) is a small biopharmaceutical company that is developing and manufacturing hypertension drugs. The company acquired a competitor, RareGen, in 2020. It welcomed its team, including major RareGen shareholder and now-independent Liquidia Director Paul Manning, who just acquired $2 million worth of LQDA stock in a recently closed public offering on April 18.
On the same day, a hedge fund (and the largest single shareholder) Caligan Partners LP forked out $9 million to purchase 1.8 million shares of LQDA stock. It increased its position to 10.1 million shares.
The latest significant insider transactions follow on the heels of a significant issue of 435,674 shares to Paul Manning as part of the 2020 acquisition deal mentioned above. Shares were withheld to secure the RareGen members’ indemnification obligations for any damages that may be suffered by Liquidia post-merger.
Recent insider transactions by Manning don’t just show the entrepreneur’s strong conviction in LQDA stock’s future. They also reveal a de-risked company. Mergers can be quite risky post-consolidation, as some pitched potential benefits may never materialize and the acquirer may unravel deep negative issues after deals close.
Rocket Companies (RKT)
Tech-driven financial services firm Rocket Companies (NYSE:RKT) has experienced a 60% decline in its stock price over the past 12 months. A 22% short interest is indicative of high trader conviction that RKT stock will still go down some more.
However, key corporate insider and CEO Jay Farner has a totally different opinion, and he is backing it with his wallet. The CEO made several acquisitions of RKT stock during the last two months.
Farner has executed 17 separate acquisition transactions on RKT stock since March. The insider bought 310,300 shares at prices ranging from $11.52 per share to $8.93 per share for a total consideration of more than $3 million.
Wall Street analysts project a 27% sequential decline in Rocket Companies’ revenue for 2022, following another similar fall in sales in 2021 to $12.4 billion.
Rising interest rates and shrinking disposable incomes during a period of rising inflation could dampen mortgage loan originations and result in higher default rates. But what if the market is wrong on that outlook? In that case, RKT stock stands to profit.
Digital payments and mobile commerce platform owner Affirm (NASDAQ:AFRM) has declined by 68% so far this year, and a major shareholder is buying the dip.
A Singapore-based sovereign wealth fund GIC Private Limited decided to double-down on its 12.5 million share position on Affirm’s common stock this month. The fund is a major institutional investor in AFRM stock, ahead of e-commerce giant Shopify (NASDAQ:SHOP), and it has increased its position significantly during the third week of April.
GIC spent nearly $72 million buying 2.1 million more Affirm Holdings shares between April 19 and 21 at prices between $32.57 and $34.98 per share.
The major shareholder has taken the opportunity to scoop more shares as traders bid down AFRM stock. Investors may view the significant insider’s recent action as a vote of confidence in Affirm stock. GIC clearly believes shares have been oversold and are undervalued relative to the company’s underlying fundamentals.
Contrarian investors seeking long-term gains may want to investigate this insider trading clue further.
CBRE Global Real Estate Income Fund (IGR)
There is something for the dividend-focused investor on this list too.
The CBRE Global Real Estate Income Fund (NYSE:IGR) is a real estate closed-end fund (CEF) that recently increased its distributions by 20% in March. The new monthly distribution yields a juicy 8.3% annually.
Usually, yields close to or above the 7% mark would be regarded as riskier and likely unsustainable by income-oriented investors. As if to reassure the investing community the fund is doing well, insiders have been buying IGR stock and stashing the dividend generator into their personal portfolios.
Portfolio Manager Jonathan D. Miniman bought 2,350 shares between March 15 and April 19 this year to increase his position to 10,013 shares. Director Leslie E. Greis acquired 24,238 shares worth nearly $200,000 on March 14 to increase her position to 38,688 shares.
Even the fund’s President and CEO Joseph P. Smith purchased 3,649 shares in March to increase his position to 22,930 IGR common shares.
Insiders could be vouching for the fund’s income generation capacity and capital growth potential with cash from their personal pockets, and income-oriented investors should take notice.
On the date of publication, Brian Paradza did not hold (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.