Investing legend Peter Lynch famously said that there are many reasons for corporate insiders to sell their company’s stock. These reasons can include the need for cash to pay tuition, buy a home, or as part of a pre-planned program to divest personal assets.
But Lynch also famously said that there is only one reason for an insider to buy shares of their company. That reason is the expectation that the price of the stock will rise.
Insiders are people who have “inside” knowledge of a company’s operations. This includes the CEO, CFO and other members of the senior management team. Insiders also include the company’s directors and stockholders owning more than 10% of the stock.
These people often have access to non-public information, and have a very good understanding of a company’s operations and prospects for the future. Of course, it is illegal for insiders to trade based on non-public information.
With the stock market near an all-time high, many insiders are selling their stock. But at a select few companies, insiders are aggressively buying up stock.
Recent and heavy insider buying has been taking place at Opko Health (NYSE: OPK), Biglari Holdings (NYSE: BH), and Worthington Industries (NYSE: WOR). Let’s take a look at each of the three stocks.
Opko Health (NYSE: OPK)
They don’t come any smarter than Dr. Phillip Frost, the Chairman and Chief Executive Officer of Opko Health. The company is a medical device and drug development company. Frost is medical doctor whose business acumen and investing has made him a multi-billionaire member of the Forbes 400.
Frost is a major shareholder of Opko, owning 162 million shares that are valued at nearly $1.8 billion. Year-to-date in 2015, Frost has invested $2.3 million and made eight open market purchases of Opko Health stock. The share price is up more than 26% for the last quarter for Opko Health.
Biglari Holdings (NYSE: BH)
Sardar Biglari is chairman and chief executive officer of Biglari Holdings, a restaurant company. Biglari owns and operates restaurants including Steak n Shake, Great American Steak & Buffet, and Wood Grill Buffet as a franchisee. He, too, is a pretty savvy investor.
Biglari is a devotee of Warren Buffett (nothing wrong there). Like Frost and Buffett, he believes the shares of his company are undervalued. So he’s been making open market acquisitions of Biglari Holdings stock eleven times thus far in 2015. His year-to-date purchases total $6.9 million.
He has been joined other insiders who have been buying for the last year without any sales. This loyalty had paid off as Biglari Holdings is up nearly 30% for just the last quarter and 7% for the first month of the new year.
Worthington Industries (NYSE: WOR)
For those looking for insider buys signaling a rebound, there is Worthington Industries.
A metals processing company, Worthington Industries shares haven’t performed well. The stock is down 31% over the last year. And already in 2015, the stock has declined by around 5%.
That performance may be a turnoff for most investors. But five insiders have bought in January 2015 at around $24.40 per share. Their total purchases haven’t been huge. In aggregate, they bought $1.3 million of the stock. They’ve been rewarded in the short term, as the stock price for Worthington Industries is up 17% in the last week.
Insiders – and especially the management team – know a publicly traded company better than anyone else.
It’s tough to go wrong following savvy, successful investors like Phillip Frost and Sadar Biglari who have been buying shares of their own company for a sustained period of time.
Certain sectors will always been in and out of favor with investors. But heavy and prolonged insider buying should be a steady bullish indicator for a publicly traded company.
Silicon Valley’s Dirty Little Secret
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