Insider buying: Most investors misunderstand the term insider trading. Of the thousands of SEC-filed transactions that corporate insiders engage in every year, just a few are deemed illegal by federal prosecutors. Within this universe of legal insider trades, it’s much more important to track insider buying versus selling activity.
As the old adage goes, there are many reasons for an exec to sell shares of his or her company, but only one, very bullish reason why they would buy (discover how some investors beat the market by following insiders). With that being said, let’s take a look at some of the most important insider buys over the past week.
Last Tuesday, the CEO and CFO of Scotts Miracle-Gro Co (NYSE:SMG) both reported purchasing shares of their company’s stock at an average price near $49.50. CEO James Hagedorn increased his direct stake in Scotts ever so slightly to 35,000 shares, and Executive VP/CFO Lawrence Hilsheimer bought at a similar price to increase his holdings to almost 1,000 shares. Since the day both insider buys were reported publicly, shares of Scotts are up 1.5%, and both execs have already booked a 12% gain on their latest trades.
Cable software provider BroadSoft Inc (NASDAQ:BSFT), meanwhile, saw board member Charles L. III snatch up more than $17,000 worth of his company’s stock last week. The director’s position in BroadSoft is now worth more than $350,000 at current market prices, and his latest trade marks his sixth buy since May. In March of this year, fellow director John Markley Jr. bought in when BroadSoft traded near $23 a share; the stock closed last week above the $36 mark.
In another bout of insider bullishness, Pulaski Financial Corp (NASDAQ:PULB) saw three board members buy stock at an average purchase price near $10.20 a piece. Shares of the small-cap bank holding company were up almost 3% last week on the news. Generally speaking, the greatest potential for market outperformance occurs when three or more insiders buy shares within a period of a few months. With multiple buys in the span of one day, Pulaski Financial is worth watching very closely moving forward.