Insider buying in the open market is generally considered a bullish indicator. Corporate insiders often have the inside track on the company's prospects. What's more, 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.
While insider selling may indicate nothing more than a college tuition bill coming due, a home remodeling or a high-end vacation, buying is typically a sign 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. These four insurance stocks made the list:
|
Security |
Net Number of Buys |
No. of Shares Bought |
Total Value |
Market Cap |
|---|---|---|---|---|
|
Brown & Brown |
1 | 20,000 | $436,000 | $3,130 |
|
Presidential Life |
4 | 1,067 | $12,000 | $336 |
|
United Fire & Casualty |
7 | 1,063 | $18,000 | $444 |
|
Endurance Specialty Holdings |
1 | 29 | $1,000 | $1,669 |
Source: Capital IQ, a division of Standard & Poor's, as of 7/28/11.
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, the open-market purchase of Brown & Brown was worth $436,000, compared with an open-market purchase of Endurance Specialty Holdings worth $1,000. Both are bullish signs, but the Brown & Brown purchase looks more promising. The stock has underperformed the S&P 500 index by about 12% since it missed earnings and revenue expectations on July 19; the insider buy is a reassuring vote of confidence. United Fire & Casualty is the only repeat from when I ran the screen a month ago, when eight stocks made the list.
Foolish takeaway
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 in 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:
