Insider trading is most profitable when several insiders buy around the same time. Academic studies have shown that insider purchases beat index funds by more than 7 % per year when there are several insiders purchasing.
Last week we published the list of companies with at least 3 insiders buying. Here is how those 7 stocks performed:
1. Bank of America (BAC): Bank of America went up by 8.3% vs. 1.0% for SPY during the past week. The insider who paid $11.3 for BAC shares had a 12% return. We were right when we stated that this is a good point to monkey BAC insiders.
2. Versar Inc (VSR): Versar returned 4% during the past week, better than SPY’s 1% return. However, it’s a very illiquid stock, so monkeying wouldn’t have yielded much in actual dollars.
3. Rimage (RIMG): Rimage went up by 4.2% beating the market by more than 3 percentage points in one week.
4. Harris Interactive (HPOL): Harris Interactive went up by 38.6%. This is a phenomenal return. However, the stock had a daily trading volume of only $30,000. Naturally, it isn’t really possible to build a meaningful position in this stock (unless one has a very small portfolio).
5. Jamba Inc (JMBA): Jamba went down by 0.5% during the past week. However, the last insider transaction had a 10-day return of 5.9%. The stock jumped by more than 6% in three days following the insider purchase and then leveled off.
6. Citigroup (C): Citigroup went up by 6.1% during the past week, beating the market averages. Last week we inferred that these insider purchases in banking stocks imply that the banking sector is undervalued in general. During the same time period KBW Bank ETF (KBE) also went up by 5.9% supporting our claim.
7. Buckeye Technologies (BKI): Buckeye went up by 3.4% during the past week. This one also managed to beat the market averages.
Overall, the consensus criterion beat passive investing by 6-1 during last week. Excluding Versar (returned 4%) and Harris (returned 38.6%), the average return for this portfolio was 4.3% during the past week. Of course, this is just a very small sample and does not prove or disprove the credibility of monkeying insider purchases. Insider Monkey, your source for free insider trading data, will share very recent academic studies with you, so that you can do your own research. 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 6 stocks insiders were buying like crazy the past week:
1. Scientific Games Corp (SGMS): Insiders have been truly buying like crazy in Scientific Games Corp. Most insiders were buying last week on Thursday and Friday when the stock was trading around $8 per share. Overall, insiders bought more than 4 million shares. The stock already went up by double digits compared to last Thursday, yet it’s still below its early September levels.
2. Black Hills Corp (BKH): Three insiders purchased modest amounts of shares Black Hills Corp (BKH), an electric utilities company. The share price has been pretty stable, so all insiders paid around $29.7 per share. The last purchase was on Tuesday at that price. The stock closed at $30.7 on Thursday. It leaves a bad taste in this monkey’s mouth to pay more than 3% premium for a stable utilities stock, but we have to follow the strategy.
3. World Heart Corp (WHRT): Mostly large shareholders have been buying this stock when it’s around $2-$2.5. The latest purchase in World Heart Corp was on Monday at $1.98. The stock closed at $1.98 on Thursday after a 3.9% decline. This is a very illiquid stock, so it isn’t really a good candidate to monkey for a quick profit.
4. Town Sports International Holdings Inc (CLUB): This is another stock which insiders have been buying like crazy for a while now. We wrote a separate article about Town Sports International (CLUB) on November 14th detailing all the insider transactions. We liked what we saw and we concluded our article by stating that we will be adding CLUB to our hypothetical portfolio. This week two insiders were buying CLUB shares at around $3.50. CLUB closed at $3.01 in November, so since we added CLUB to Insider Monkey’s hypothetical portfolio it went up by 21%. (This is not investment advice though. Everything mentioned here is solely for educational and entertainment purposes. You have to do your own due diligence. We don’t accept any responsibility for losses.)
5. Career Education Corp (CECO): We previously covered Career Education Corp on November 18th. The latest insider purchase was on December 3rd at $18.26. In November, insiders bought these shares at $17.50 and $17.98. So it seems like $18 is the trigger level for insiders. Unfortunately the stock closed at $19.18 on Thursday, 5% above the insiders’ price. Previously we warned readers that Career Education Corp. had been in the crosshairs of some short-selling hedge funds, as are other education stocks. If we didn’t have to follow the strategy, Insider Monkey would stay away from this stock.
6. Raymond James Financial Inc (RJF): Three insiders bought miniscule amounts of Raymond James Financial through their company’s retirement program. These transactions are probably meaningless. Academic researchers didn’t exclude these transactions when they calculated their returns to insider trading, but Insider Monkey won’t be imitating these transactions. We believe excluding these transactions should improve our hypothetical returns. So, RJF is out.
Insider Monkey is a finance blog that tracks insiders and famous fund managers such as Warren Buffett.