In this article, we will take a detailed look at the 10 Worst-Performing Stocks Insiders are Buying in 2024. If you want to skip our detailed analysis and see the top 5 stocks in this list, click 5 Worst-Performing Stocks Insiders are Buying in 2024.
Expert money managers and investors have always advised individual investors to not fret over short-term price movements and always buy and hold stocks for the long term. As Warren Buffett once said, you should be greedy when others are fearful and fearful when others are greedy. This advice of going against the tide is usually followed by insiders too, who are extremely smart when it comes to stock trading as insider trades have beaten the market by significant margins in the past.
When Do Insiders "Go Against the Tide"?
In a research paper titled Trading Against the Grain: Why Insiders Buy High and Sell Low, researchers say that insiders usually buy low and sell high because of their "anchoring bias." What does that mean? The paper says that insiders usually buy their own stock when it's trading at or near 52-week lows. They take the 52-week lows as "anchors" and perceive them to be buying opportunities. That's because insiders are always playing with an informational advantage, and when markets react irrationally to news such as earnings or other key events, insiders swoop in to deploy this advantage. The research paper analyzed insider trades for the period between 1986 to 2017 to reach this finding. The paper also cited a study titled Psychological Factors and Stock Option Exercise which says that the probability of an employee exercising options "doubles when the underlying stock price crosses its 52-week high."
How Can Outsiders Profit from Unusual Insider Trades
But in some special situations, insiders are able to overcome this anchoring bias. That's when they are aware of some important insider information. This informational advantage scenario makes them overcome these biases and buy high and sell low. The researchers, after processing data, concluded that when insiders are buying a stock at its 52-week highs, it means they are operating with some positive information about the company, and the stock is expected to grow in the future. The research paper gave a real-life example of this phenomenon. On July 25, 2017, a director at E*TRADE Financial Corporation bought 5,000 shares of the company when its stock was at a multiyear high. This insider purchase seemed counter-intuitive at the moment. But over the next six months, the stock jumped about 32%.
Worst Performing Stocks with Latest Insider Buys
Photo by Ruben Sukatendel on Unsplash
On the other hand, if insiders are selling a stock at its 52-week lows, it shows insiders are aware of a bad news that would hammer the stock price further in the near future. Here is an important excerpt from the research paper:
"We find that the subsequent 30- day stock returns following high buys using decile sorting are at least 3.31% higher than low buys. In contrast, the subsequent 30-day stock returns following low sells are at least 1.03% lower than high sells. This differential return pattern survives a number of robustness checks, including alternative sorting schemes, various return horizons, different abnormal return specifications, univariate versus multiple regression analysis, and insider contrarian/momentum investment style. We conclude that when insiders buy and sell against the influence of anchoring bias, they do so because they have compelling private information. More important, we show that outsiders can follow these informative trades and make significant returns. A long-short trading strategy (“buy high and sell low”) based on these findings can generate an average annual abnormal return of 23.76% to 31.32% before transaction costs. Conventional contrarian or momentum trading strategies do not fully explain our findings."
The researchers also said that insider trades are more informative when a stock "moves away" from its anchor levels. That's where insider buying and selling transactions signal important information for outsiders.
For this article we first used a stock screener to identify stocks that have posted the worst returns so far this year. From these, we narrowed down to the companies that have seen insider buying activity over the past few weeks. We then chose 10 of these stocks with the highest declines on a year-to-date basis and significant insider buying in terms of dollar value. Some top names in the list are PENN Entertainment Inc (NASDAQ:PENN), Comstock Inc (NYSE:LODE) and Malibu Boats Inc (NASDAQ:MBUU). Why should you pay attention to insider trading activity? Insider Monkey’s monthly newsletter and portfolio that focuses on activist hedge funds, insider trading and stock picks from hedge fund investor newsletters and conferences returned 199.2% between March 2017 and March 12, 2024 and outperformed the S&P 500 ETFs’ 144.9% gain by more than 54 percentage points.
Travel technology company Sabre Corp (NASDAQ:SABR) shares are down about 34% so far this year. On May 8, Sabre Corp's (NASDAQ:SABR) CEO Kurt Joseph Ekert bought a whopping 65,000 shares of Sabre Corp (NASDAQ:SABR) at $2.57 per share. The net worth of these shares is $1.2 million. Since this transaction the stock price has gained 6%.
Malibu Boats Inc (NASDAQ:MBUU) shares are down about 33% so far this year. On May 6, Mark W. Lanigan, a director at Malibu Boats Inc (NASDAQ:MBUU), bought 20,000 shares of Malibu Boats Inc (NASDAQ:MBUU) at $33.43 per share. The total value of this transaction is $668,600. Since this transaction the stock price gained 4.32%.
SouthernSun Small Cap Strategy stated the following regarding Malibu Boats, Inc. (NASDAQ:MBUU) in its first quarter 2024 investor letter:
“Malibu Boats, Inc. (NASDAQ:MBUU), a leading manufacturer of recreational boats, was the top detractor in the Small Cap strategy during the first quarter. Malibu reported disappointing fiscal second quarter earnings with revenues down 38% and sales volumes down 44%. Management lowered sales and adjusted EBITDA margin guidance for the remainder of the fiscal year while they focus on reducing channel inventories prior to the release of the new model year later this summer. During the quarter, Jack Springer, who has served as CEO for more than 15 years, announced his departure, scheduled for May of 2024. The Chairman of the Board, Michael Hooks, and Chief Operating Officer, Ritchie Anderson, will fill the interim Office of the CEO while the company searches for a replacement. As of December 31, 2023, the company had net cash on the balance sheet, providing flexibility for the business to withstand current industry challenges. After the end of the first quarter, on April 11, 2024, Malibu filed a Form 8-K with the SEC disclosing that one of its dealer partners had filed a complaint against the company alleging Malibu had breached its obligations under its dealership agreement. We have discussed the situation with management and other industry contacts, as we continue to evaluate the potential impact.”
Banking company Meridian Corp (NASDAQ:MRBK) ranks eighth in our list of the worst-performing stocks insiders are buying. On May 2, 2024, Meridian Corp (NASDAQ:MRBK) CEO Christopher J. Annas bought 3,000 shares of Meridian Corp (NASDAQ:MRBK) at$9.15 per share. Since this transaction the stock price jumped 2%.
In addition to MRBK, PENN Entertainment Inc (NASDAQ:PENN), Comstock Inc (NYSE:LODE) and Malibu Boats Inc (NASDAQ:MBUU) are also seeing insider buying.
Medical technology company Conmed Corp (NYSE:CNMD) is one of the worst-performing stocks insiders are buying this year. The stock has lost about 36% in value so far this year. On May 6, Martha Goldberg Aronson, a director at Conmed Corp (NYSE:CNMD), bought 2,000 shares of Conmed Corp (NYSE:CNMD) at $70.98 per share. The stock is down about 0.6% since this transaction.
Insiders also bought PENN Entertainment Inc (NASDAQ:PENN), Comstock Inc (NYSE:LODE) and Malibu Boats Inc (NASDAQ:MBUU) despite their declines this year.
ClearBridge Small Cap Growth Strategy stated the following regarding CONMED Corporation (NYSE:CNMD) in its first quarter 2024 investor letter:
“Encouragingly, we are seeing underlying improvements from companies we do own in the portfolio, with several being recent portfolio additions or subjects of repositioning work executed in 2023.
Protective films and coating materials company Xpel Inc (NASDAQ:XPEL) ranks sixth in our list of the worst-performing stocks insiders are piling into this year. On May 8, John F. North, a director at Xpel Inc (NASDAQ:XPEL), bought 3,000 shares at $32.17 per share. The total value of this transaction was over $96,000. Since then the stock is up 2.5%. The stock is down about 38% so far this year.
“XPEL, Inc. (NASDAQ:XPEL) was also a major detractor. The company develops and manufactures automotive products including window tints and cut-to-fit protective films for painted surfaces. The stock was down on news that Tesla, a prominent XPEL customer, started offering color and clear paint-protection film wraps in two California service centers without using XPEL’s products. This news caused investors to question how much business XPEL might lose if Tesla’s recent move is the start of a broader trend. Our initial reaction to the news isn’t overly pessimistic because Tesla vehicles account for only about 5% of XPEL’s revenues and because other automobile manufacturers have been increasing the use of XPEL’s products. Nevertheless, our senses are heightened as we continue to evaluate our position in the stock.”