In his latest column for Forbes, newsletter guru Jim Oberweis says that keeping an eye on whether company insiders are buying shares of their firm can help guide you to winning stocks.
“Officers and directors know virtually everything that can be known about their business,” Oberweis writes. “They see sales trends, know the development pipeline and are as likely as anyone to know what the competition is up to. Information access provides a big advantage in trading the stock. Insiders may sell shares for any number of reasons, but there is really only one reason to buy.”
Oberweis says research shows that insider buying has indeed been a good indicator of future stock performance. But he also warns that it’s not a magic bullet. “When evaluating a company, I still spend most of my time looking at the underlying business, its growth potential and the valuation I have to pay for it,” he says. “Still, all else being equal, I have found that my odds improve when insiders are buying, too.”
Oberweis looks at four small-cap stocks he likes that have had significant recent insider purchases. Among them: Titan International.