How To Find The Insider Trades That Consistently Outperform The Market – Under The Radar

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There are lots of stories and discussions about insider buying that hit the internet every day. Most appear to have been written by people whose research into corporate insiders’ buying and selling activities involves reading the book jacket blurbs on a book containing a chapter on insider activity.

Some insider buying matters. Some carry very little helpful information.

Although you will see breathless stories suggesting a likely stock market apocalypse because an insider is selling shares of a current market darling, the truth is that such sales are almost always meaningless.

A large institution buying more small company shares will often appear on the tape as a big insider buy. Still, this information is useless as an indicator of future returns.

Most option exercises and stock grants are worthless in terms of predictive value.

Knowing which insider purchases contain valuable information is critical if you use insider activity as a basis for investment or trading activities.

See, there's one group of insiders that consistently win when they open their checkbooks and buy their company’s stock on the open market.

Here's how to find them.

I am talking about C-suite executives. These are the folks involved in the big decisions about the company who want to see the daily operations and results.

They have a significant information advantage, not just over the public but also over other executives and board members.

The higher up on the food chain you are, the better your chances of making big money on your insider trades. The CEO and CFO have the highest probability of success.

Of these two, the CEO does not have the edge. The CEO sees everything that happens as planned for the company. The CFO lives with the numbers and cash flows all day, every day, and understands how every decision will impact the company’s profits and financial conditions.

Historically, that edge has allowed the CFO to earn very high returns when they make an open market purchase of their company stock.

Here at Under the Radar, we have spent considerable time reading studies and crunching data related to insider activity. One of the biggest lessons is that intelligent investors pay attention when a CFO whips out their checkbook.

The stock market has been very strong this year, so there has been far more insider selling than buying activity.

Insiders tend to be bargain hunters, and bargains have been hard to find recently.

Recently, we have seen two CFO buys that are worth our attention.

CFO Andrew Williams of Epsilon Energy (EPSN) has recently been making open-market six-figure purchases of his company.

While he bought his shares a little below the current market price, the low level of oil and gas in the third quarter is likely to lead to an earnings disappointment when the company reports its third-quarter results.

Epsilon is positioned to see a huge long-term profit increase due to increased natural gas demand over the next several years.

Recently, the CFO had done some financial modeling and understands, as we do, that the impact of rising natural gas prices on Epsilon’s bottom line should result in a dramatically higher stock price.

While the real opportunity in shares of Epsilon is the potential for several times your purchase price over the next several years, it doesn’t hurt that the company pays a generous dividend.

At the current price, Epsilon shares are yielding over 4%.

I know nothing about biotechnology or pharmaceutical development; I doubt that most Experts on the Internet have much knowledge of the drug approval process and which drugs will hit and which ones will not.

However, the C-suite executives have a pretty good idea of how it all works and the potential for their stock if they gain approval or cut a deal with a bigger company.

More than anyone, the CFO knows exactly what will happen to the bottom line in the case of these wildly positive developments.

When the Chief Financial Officer decides it is worth investing six figures in the stock of the company they oversee, it is worth paying attention.

Relmada Therapeutics Inc. (RLMD) is developing new drugs to treat central nervous system diseases. The company is also researching ways to use low-dose psilocybin as a treatment for metabolic diseases and is conducting other drug trials.

My knowledge of psilocybin as a treatment for anything is limited to a handful of Grateful Dead concerts in the 1970s.

CFO Maged Shenouda knows more about the drugs the company is developing and what it will do for the bottom line and stock price than I ever will.

He has been making open market purchases of the stock regularly this year, with the latest six-figure open market buys taking place just a few weeks ago.

He is not the only one buying. CEO Sergio is also making consistent large purchases of the stock.

Here is where it gets interesting.

Without much fanfare, Jefferies, the brokerage and research firm, recently upgraded the stock to a buy, saying that the current drug in Phase 3 trials has a chance of being a huge success for the company. Analyst Andrew Tsai raised his price target to $14.

Both stocks have remained under the radar of Main Street media and most of Wall Street.

If the CFOs are correct, both stocks have the potential for returns that are several times the current stock price.

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