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Of the many signals important for stock investing, insider buys rank among the top positive signals. Wharton’s study on “Estimating the Returns to Insider Trading” took a comprehensive 22-year look at gains from 1975 to 1996. One quarter of abnormal gains from insider buys typically occurs within five days following the trade, while half of the gains occur within a month.Overall, similar studies show insider buys as outperforming the stock market by up to 10% annually. Of particular note is the type of shares that can yield greater results. In the paper “Are Insiders’ Trades Informative?” Lakonishok and Lee concluded the following:
“We observe that the largest spread in returns between stocks that insiders buy and sell is in small-growth stocks. Insiders in general are heavy sellers of such stocks, and indeed, those stocks are associated with relatively low returns.”
The authors noted that when the opposite happens, buying such stocks, insiders “know what they are doing.” These insiders are typically financial officers, lawyers, accountants, investment advisors, hedge fund managers, or anyone else privy to non-public information about companies.With that in mind, which stocks have received the largest “insider” buying pressure in the last three months?
Cerevel Therapeutics Holdings (Nasdaq: CERE) – $395 Million
According to HedgeFollow, this clinical-stage biopharma company received buying pressure from three large investors: Gordon Christopher, Koppel Adam, and Bain Capital Investors. Overall, they equally bought 5.48 million CERE shares at $22.81, worth $395 million. In the last three months, CERE gained $13 value, now at $25.68 per share. In the latest Q3 2023 earnings report released last Wednesday, Cerevel beat earnings expectations at -$0.61 vs -$0.63 consensus. Despite reporting a net loss of $96.1 million for the quarter, this also beat analysts’ expectations. Biopharma inflows are highly dependent on new drug deployments or the promise of ones. Cerevel announced positive Phase 3 trial results for Tavapadon, a Parkinson’s disease treatment candidate. Likewise, the company started a Phase 2 proof-of-concept trial for a promising epilepsy and panic disorder treatment called Darigabat. With new inflows and $499 million from common stock, the young biopharmaceutical has funds to operate well into 2026. According to 13 analyst inputs pulled by Nasdaq, CERE shares are a “strong buy.” The average CERE price target is $31.5. The high estimate is $38 vs the low estimate of $25, which is the present range at press time.
Occidental Petroleum Corp (NYSE: OXY) – $246.41 Million
Headquartered in Houston, Texas, Occidental is one of the largest oil and gas producers in the US, mainly focused in the Permian Basin and the Gulf of Mexico. Over 100 years old, the company has an established profitability record.According to HedgeFollow, Berkshire Hathaway bought 3.92 million OXY shares at $62.83 in the last three months, totaling $246.41 million. This is not surprising as Berkshire invests heavily in the energy sector, alongside technology and banking.During that time period, OXY stock went down -2.48%, now trading at $62.27. The company is scheduled to release Q3 earnings this Wednesday. In Q2, Occidental missed the earnings-per-share (EPS) consensus of $0.70 by $0.02. However, Occidental’s revenue has been growing at an average of 16.9% annually, with a 23.1% return on equity and net margins of 18.5%. Both of these indicate high efficiency in generating profits from revenue. Based on 20 analyst inputs pulled by Nasdaq, OXY stock is a “buy.”The average OXY price target is $70.55 per share. The high estimate is $81 vs the low estimate of $60, which is just $2.27 under the current price.
Maplebear (Nasdaq: CART) – $123.79 Million
As the parent company of Instacart, this online grocery delivery/pick-up service has grown at an impressive average annual earnings growth rate of 104.5%. In the last three months, CART stock received $123.79 million in inflows from Sc US ($90 million), D1 Capital Partners ($30 million), and Grosvenor Capital Management ($1.99 million).The buy price was $30 vs the current CART price of $27.78, which marks a 29.47% three-month downturn. Alongside broader market correction that caused the sell-off, there is concern that Amazon Fresh and Walmart+ will outcompete Maplebear’s core business model.Maplebear is scheduled to release its earnings report this Wednesday. In Q2, the company reported $114 million net income while missing its EPS estimate. The consensus EPS forecast for the quarter is -$17.33 based on six analysts pulled by Zacks Investment Research. Although negative, Maplebear’s investment prospect is a long-term one, given its higher growth rate compared to the consumer retailing industry. In other words, its profitability is allocated heavily to its growth. This is why CART has a high Earnings Quality Ranking (EQR) for the 7th consecutive week, oriented towards future earnings. Based on 15 Wall Street analyst inputs, CART stock is a moderate buy.The average CART price target is $35.58. The high estimate is $48 vs the low forecast of $28, which is just in the current price range.More By This Author:AMC’s Q3 Earnings Report: What To Expect
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