While investors shouldn’t get too focused on any one signal, a great source of confidence stems from insider favorite stocks. As the old adage goes, it’s difficult to tell what insider selling means. After all, investors could exit a position for a number of reasons, including mundane ones including for tax purposes. However, insider buying points to a single logical conclusion: the buyers believe shares will move higher.
Discounting the idea of deliberate irrationality, everybody invests for one reason and one reason only: to make money. Obviously, you don’t get there by buying high and selling low. So, when you come across insider favorite stocks, that’s a powerful endorsement that the folks behind the enterprise are putting their money where their mouth is.
As well, investors have the confidence of knowing that insider buying represents transactions from those closest to the business. Additionally, there are opportunity costs involved. If insiders acquire shares, they can’t use that money for other reasons.
It’s a lot better than the opposite situation where a scandal forces a mass executive dumping scheme. On that note, below are insider favorite stocks to consider.
RXO (RXO)
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Billed as a high-performing brokered transportation platform, RXO (NYSE:RXO) offers investors cutting-edge technologies and a nimble, asset-light business model. Per the company’s Form 10-K disclosure, RXO represents the fourth-largest broker of full truckload freight transportation in the U.S. based on 2021 revenues. Approximately, the enterprise commands 4% share of the $88 billion brokered truckload industry.
It’s a relatively new addition to the public market, being spun off from transportation company XPO (NYSE:XPO) in 2022. Interestingly, XPO has been on a meteoric run over the past 52 weeks, with management revealing better-than-expected fourth-quarter earnings results. In turn, RXO was receiving some residual love until it got hit by volatility despite beating fourth-quarter earnings estimates.
Still, the high-conviction bulls don’t seem deterred, with RXO ranking among the insider favorite stocks. Earlier this month, MFN Partners bought 747,424 shares of the transportation platform. Currently, analysts rate shares a hold with an average price target of $21.88. That’s not encouraging. However, should economic metrics improve, demand could easily spill over into the trucking industry.
PBF Energy (PBF)
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On the surface, PBF Energy (NYSE:PBF) might not seem an ideal trade with which to follow the smart money. Sure, it’s one of the ideas benefiting from insider buying. However, as a petroleum refining and logistics company, PBF suffers from broader questions. For one thing, oil-producing nations efforts to artificially lift the price of crude via production cuts haven’t exactly panned out.
Second, the economy has suffered from the double whammy of elevated inflation and high interest rates. With people pulling back on their discretionary spending, you’d think PBF may encounter resistance. So far, though, the opposite has been true this year. That’s been helped by a significant volume of insider buying that occurred last month.
Despite major concerns, the economy has proven resilient, especially the labor market. So long as more money chases after fewer goods, the hydrocarbon space should benefit. Even better, PBF trades at a discount to earnings and sales. Analysts view shares as a consensus moderate buy with the high-side target coming in at $63. Therefore, it makes a solid case for insider favorite stocks.
Compass Diversified (CODI)
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Structured as a holding company, Compass Diversified (NYSE:CODI) aims to provide its shareholders with unique access to niche middle-market businesses. Per its website, this is an attractive segment of the market historically reserved for private equity or other legacy players. From the company’s Form 10-K, it acquires controlling interest in and actively manages businesses that it believes operate in industries with long-term macro opportunities and enjoy positive and stable cash flows, among other attributes.
In some ways, investing in an enterprise like Compass offers the best of both worlds. On one hand, you can invest in CODI like any other public equity. And on the other side, this company leverages its expertise to find true hidden gems that normally wouldn’t be available to regular retail investors. Adding to this attractive narrative, CODI also ranks among the recent insider favorite stocks.
According to TipRanks, its insider confidence signal pings as “positive.” Specifically, several key individual insiders have been acquiring shares over the last few weeks. Also, Bank of America Securities’ Derek Hewett pegs CODI a “buy” with a $27 price target.
Occidental Petroleum (OXY)
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One of the top-tier hydrocarbon specialists, Occidental Petroleum (NYSE:OXY) engages in exploration projects in the U.S. and the Middle East. As well, it conducts petrochemical manufacturing in the U.S., Canada and Chile. As a largely upstream player, Occidental might not seem relevant amid the push for clean and renewable energy sources. However, the harsh reality is that the world runs on oil and it may continue doing so.
One person who believes in this (I suppose) contrarian narrative is Warren Buffett. Through his Berkshire Hathaway (NYSE:BRK-B) conglomerate, Buffett acquired a significant number of OXY shares this month. As well, the Oracle of Omaha indulged in an Occidental shopping spree, buying up tons of shares. That’s not to say that Buffett doesn’t believe in electric vehicles and whatnot. However, he’s being sensible.
Hydrocarbons command superior energy density. And their infrastructure is largely already laid out. Other analysts also agree with the Oracle, rating shares a consensus moderate buy. The average price target lands at $68.40, making OXY one of the top insider favorite stocks.
Edgewise Therapeutics (EWTX)
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A clinical-stage biopharmaceutical company, Edgewise Therapeutics (NASDAQ:EWTX) focuses on creating novel precision medicines for the treatment of rare muscle disorders. Per its website, Edgewise leverages its intimate knowledge of integrated muscle physiology at a whole-body level, enabling the company to develop innovative solutions for impacted patients. Recently, EWTX skyrocketed amid key insider buying.
According to data from Fintel, Orbimed Advisors earlier this year bought up 454,545 shares of EWTX. Before the transaction, EWTX soared from below $10 to almost $16. And from there, shares soon started to knock on $20 territory. To be fair, other insiders decided to sell their holdings around the same time. However, the size of Orbimed’s transaction – almost $5 million – dwarfed the nearby informative sell orders.
Looking at Edgewise’s financials, it doesn’t exactly have the greatest print. However, the company commands robust strengths in the balance sheet. In particular, its cash-to-debt ratio comes in at 52.39X. As for Wall Street’s experts, EWTX represents a unanimous strong buy with a $25 average price target.
PaySign (PAYS)
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Based in Henderson, Nevada, PaySign (NASDAQ:PAYS) offers customized, end-to-end solutions to complicated payment problems. To address cardholder needs, PaySign offers 24/7 customer care. As well, its website claims it provides 100% bilingual support. Moreover, the company serves multiple industries, including healthcare, retail, and hospitality, among others. While it hasn’t enjoyed the best performance in 2023 overall, it’s been on a blistering run since late October.
According to Fintel, on Feb. 6, Topline Capital Management acquired a total of 77,088 shares. A day earlier, the firm bought 43,607 shares. And a few days before that, it purchased 30,149 shares. And that wasn’t the only transaction this year. In January, it acquired several thousand shares as PAYS went on an unbelievable run.
To be sure, the concept of buying into such extreme upside momentum – even if it’s one of the insider favorite stocks – is daunting. Nobody wants to hold the bag. However, analysts rate shares a unanimous strong buy with a $4.33 average price target. Thus, this insider buying could take things higher still.
Akoustis Technologies (AKTS)
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A literal penny stock, prospective investors need to be extremely careful with Akoustis Technologies (NASDAQ:AKTS). If the share price wasn’t enough to frighten you, the ugly 52-week performance might. Just to provide some context, in February of last year, AKTS traded hands above four bucks. That’s just an astounding collapse.
At the same time, insider buying in Akoustis demonstrates that the top dogs see something here. Specifically, at the end of last month, four insiders collectively acquired 1.5 million shares of AKTS. That might seem rash until you realize Akoustis’ core business. Per its website, the company seeks to revolutionize the radio frequency (RF) filter industry.
Through the targeting of high-power, high-frequency and ultra-wideband solutions for various connectivity applications, Akoustis enjoys relevance for the burgeoning 5G infrastructure and mobile buildout. And this could be lucrative for AKTS, with the global 5G services market size projected to hit over $2.2 trillion in value by 2030.
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On the date of publication, Josh Enomoto did not have (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.
A former senior business analyst for Sony Electronics, Josh Enomoto has helped broker major contracts with Fortune Global 500 companies. Over the past several years, he has delivered unique, critical insights for the investment markets, as well as various other industries including legal, construction management, and healthcare. Tweet him at @EnomotoMedia.
