Insider trading has a negative connotation for many Americans due to the idea that company management can buy or sell shares of stock before important information about a company goes public. But while insider trading based on material non-public information is illegal, standard insider trading is perfectly fine as long is it's properly publicly disclosed.
In fact, retail investors can get some useful information about the mood within a company or the general outlook for a stock by paying attention to trends in insider trading.
Traders can expect the typical stock to experience much more insider selling than insider buying, which may not be as bearish of an indicator as it seems. Since many executives have stock-based compensation as part of their payment package, many of these insiders are simply liquidating their stock-based payments rather than betting against the company.
Insider Buying Is Key
On the other hand, insider buying is a true indication that management believes so strongly the stock price is headed higher that they are putting their own money at risk.
“There’s only one reason you buy stocks — you’re speculating on your stock going higher," Benzinga PreMarket Prep co-host Dennis Dick recently said. "Executive buys move the price up often. Executive sells don’t move the price down very often."
Stocks With The Most Insider Buying
Here are the eight S&P 500 stocks that have experienced the biggest positive changes in total insider ownership, according to Finviz.
- MGM Resorts International (NYSE: MGM), +355.1% ownership.
- NortonLifeLock Inc (NASDAQ: NLOK), +293.5% ownership.
- Alphabet Inc Class C (NASDAQ: GOOG), +245.1% ownership.
- LyondellBasell Industries NV (NYSE: LYB), +240.6% ownership.
- AES Corp (NYSE: AES), +208.0% ownership.
- Ulta Beauty Inc (NASDAQ: ULTA), +137.2% ownership.
- Macerich Co (NYSE: MAC), +30.2% ownership.
- Fossil Group Inc (NASDAQ: FOSL), +24.4% ownership.
Insider buying can be particularly comforting for investors of companies like Macerich and Fossil, two stocks that are down more than 40% in the past year. While it’s part of the job description for executives to paint an optimistic picture on earnings calls and in interviews, nobody is forcing them to bet their own money on the stock.
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