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February 04, 2012 - When "Insider" Greed Is Good - By Zacks Investment Research
By: Tracey Ryniec
What do Michael Dell and Sam Susser have in common?
Both are CEOs who bought shares of their own companies in 2011 just before the share prices moved higher.
You have probably heard of Michael Dell, the CEO of Dell Corporation. In 2010 and 2011, he made a big statement by buying $250 million worth of shares in Dell, including a single $150 million transaction, even though he already owns a gazillion shares. Dell shares were up 5% within 5 days of the news of his $150 million buy.
But who is Sam Susser?
He's the CEO of Susser Holdings Corporation, which operates convenience stores in Texas, New Mexico, Oklahoma and Louisiana. On Dec 7, 2011 he bought 25,000 shares worth $543,750. It was his largest open market share purchase since October 2006, when he bought 68,750 shares.
Since the day of his purchase on Dec 7 through the close on Feb 2, Susser Holdings stock has risen 14.1%.
Clearly it is beneficial for investors to follow insider buying activity. But digging below the surface to find the obscure purchases by folks like Sam Susser is a worthwhile pursuit. Read on to learn how to do this on a regular basis.
Insider Buying Sends a Strong Signal
Why would these two CEOs spend their own hard-earned cash on their own companies' stock when they already own a ton of shares already?
Pure and simple.
The opportunity to make more money motivates people -- even people who are already billionaires like Michael Dell.
If top insiders are buying, it's because they know something very good is going on at the company. Maybe it is a new product. Or contract. Or pending merger. Whatever the reason, they are very confident that shares will be on the rise. After all, who would buy more stock in a company if they knew it was sinking???
Buy When the Insiders Buy
When high level insiders buy, they are required to report the purchases to the SEC within 48 hours of the trade. The trade then becomes public information.
Hedge funds and other professional investors routinely use this information to get an edge on their trades.
For most of us, though, it's not easy to get access to the insider information. While the media will trumpet huge insider buys like Michael Dell's $150 million purchase, did you hear anything about Sam Susser's $543,750 purchase?
The challenge is getting easy and reliable access to all the insider trades and then figuring out which ones to buy.
Where to Find the Insider Buys
Anyone can go on the SEC website and get the insider trading information, but it's time consuming to search by individual companies.
Some investment firms collect the insider buying data and can provide it to you as a weekly list. Have you ever seen one of those lists? The sheer number of companies can be overwhelming.
And then when you get the list, if there are 100 companies on it, how do you know which companies are the best to invest in?
We'll Give You the Trades
To solve this problem, our Zacks research team developed a strategy that monitors selected insider buying activity at companies that already show strong earnings momentum and attractive valuations. Tests show that this Insider Trader approach can triple the performance of even Zacks #1 Rank Strong Buy stocks. It even produced impressive profits during the heart of the bear market in 2008.
Best, Tracey Ryniec
Tracey is Zacks' value strategist and is the Editor in Charge of our Insider Trader.