Insider buying in the open market is generally considered a bullish indicator, since corporate insiders often have the inside track on the company's prospects and their income is typically closely tied to their company's stock. Often, a big chunk of that income is in the form of stock options or restricted stock. What's more, diversification argues for minimizing exposure to any one company rather than adding to it with insider buys.
Insider selling may indicate nothing more than a college tuition bill coming due, a home remodeling, or a high-end vacation, but typically it's a sign that the insider expects the stock to rise. Buying in the open market could be considered more bullish than exercising stock options because the insider found some other way to fund the purchase.
With that in mind, I ran a screen to find companies that have had at least one insider make an open-market buy in the past 30 days. Here are eight diversified financial stocks that made the list.
Net Number of Buys
No. of Shares Bought
Market Cap (Millions)
|Fifth Street Finance (NYSE: FSC )||3||41,000||$476,000||$841|
|Ladenburg Thalmann Financial Services (AMEX: LTS )||1||50,000||$63,000||$266|
|Netspend Holdings (Nasdaq: NTSP )||1||5,000||$42,000||$847|
|The Edelman Financial Group||3||5,712||$41,000||$235|
|MassMutual Corporate Investors (NYSE: MCI )||2||451||$8,000||$306|
|Ares Capital (Nasdaq: ARCC )||1||500||$8,000||$3,215|
|Source Capital (NYSE: SOR )||1||100||$5,000||$492|
|PICO Holdings (Nasdaq: PICO )||2||130||$2,000||$652|
Source: Capital IQ, a division of Standard & Poor's, as of 6/28/11.
When it comes to the number and total value of insider open market buys, more could be considered better. The table is sorted accordingly. For example, there were eight open-market purchases of Fifth Street Finance worth $476,000 compared with two open-market purchases of PICO Holdings totaling $2,000. Both are bullish signs, but the Fifth Street Finance sign is more likely to be marking an on-ramp you want to take.
Insider buying is a sign that someone who should be in the know is betting that the stock is going to rise. You can use this list of open-market insider purchases from the past 30 days to generate research ideas and/or reinforce a contrarian view.
Are these insiders right? To help you find out, The Motley Fool recently introduced a free My Watchlist feature. You can get up-to-date news and analysis by adding companies to your Watchlist now: