Academic studies have shown that stocks intensively bought by insiders tend to outperform the market by more than 7 percentage points a year. We have been publishing the lists of such companies for the past three weeks. The stocks that insiders bought like crazy managed to beat the market during the first two weeks. Last week we listed four stocks with the top insider purchases. Here is how those 4 stocks performed:
1. Town Sports International Holdings Inc (CLUB): We’ve said that CLUB is one of the top stocks with insider purchases for the past 6 weeks. It’s one of the two stocks we added to its hypothetical (and public) portfolio in mid November. When we added it to our portfolio, the stock was trading at $3.01. On Thursday, the stock closed at $3.98. The stock is up 7.3% since last Thursday’s close, beating the S&P 500 ETF (SPY) which returned 1.15%.
2. World Heart Corp (WHRT): We said World Heart Corp is a very illiquid stock and that we were staying away from this one. The investors who didn’t follow our advice returned 5.5% since December 16th.
3. Bank of America (BAC): This is another stock with persistent insider buying. Initially in November, two insiders made substantial purchases at around $12.50. We weren’t very keen on Bank of America’s insider purchases then. At the beginning of December another director purchased BAC shares at around $11.30. We said:
This is nearly 10% less than the price paid by previous insiders. We weren’t enthusiastic about the previous purchases but we believe this is a better point to monkey insider buys.
We were lucky/right. Since then, BAC shares have been outperforming the market. Bank of America shares returned 4.3% since December 16th, beating the market by more than 3 percentage points.
4. Scientific Games Corp (SGMS): “Jim Cramer didn’t recommend buying SGMS last week in Mad Money. Nevertheless, we are sticking with the insiders here.” That’s what we said about SGMS on December 16th. Scientific Games Corp returned 4.8% since then, beating the market by more than 3.5 percentage points.
So, all of the four stocks we highlighted on December 16th outperformed the market by a huge margin. Excluding WHRT, the average return of these stocks was 5.5%, beating the market by 4.3 percentage points in one week. The stocks with significant insider purchases managed to beat the market a third time in a row. Thirteen out of the 16 stocks we picked managed to beat the S&P 500 index, usually by a huge margin. We will keep providing weekly 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 5 stocks with blizzard like insider purchases this past week:
1. Dell Inc (DELL): Michael Dell purchased $100 million of Dell shares on December 17th at $13.57.
4. Zoltek Companies Inc. (ZOLT): Insiders have been buying Zoltek Companies (ZOLT) shares since December 7th. The stock price took off 15% since. The latest insider purchase was at $10.14. ZOLT’s closing price is $11.38. This is one of those cases where one should be acting quickly - right after the insider purchase is ideal.
5. Tucows Inc (TCX): An officer, a director, and a large shareholder of Tucows Inc (TCX) bought this stock at $0.70-0.78. This is also a very illiquid stock, and we will be staying away from this one.
Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.