One way to pinpoint companies with bullish sentiment is by looking at company insider buying trends. After all, company insiders such as upper management and members of the board know more about their companies than any other investors.
It’s what makes watching insider buying so interesting. Whenever shares are sold, analysts and investors question the motivation. Did the insider sell because they need more liquidity to buy a new car, pay medical bills or go on vacation? Or does the insider simply think the shares are overvalued and likely to drop in value? There are several possibilities. But when insiders start to buy up shares of their company, there’s really only one good explanation: They think share price is undervalued and are confident there is more upside potential. Of course, these predictions aren’t always realized, but it’s a strong indicator for outsiders to go by
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Insider activity alone isn’t enough to actually shift market prices. This day and age it’s the work of hedge funds that make it their daily business to buy, sell and move millions of shares every day that really get share prices moving. But hedge funds pay attention to insiders too, so insider activity can set a spark that puts institutional buying (or selling) in action.
THE LISTSo we were wondering, which companies have seen the greatest level of buying activity from insiders? To create this list, we started with a universe of 85 companies reporting significant insider buying over the last six months. To refine the list, we collected data on institutional transactions, and identified the names that have seen significant inflows during the current quarter. [Compare our final list below with the results of the same screen run on January 23, 2013. That list has an average 1-year return of 30%.] Sophisticated investors, like hedge fund managers, think these names are going higher. Insider executives seem to agree – do you? List average 1-year return at 67%.
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