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Insider Trading Info You Can Actually Use

In keeping with the rules of the Toronto Stock Exchange, company “insiders” (which includes senior company officers and directors) have to disclose purchases or sales of their company’s stock to the exchange. These transactions are reported on a daily basis to the investment community.

Trading by company insiders may indicate a general positive or negative view by these top executives regarding the business of the company. Obviously, there are a variety of unrelated reasons why insiders may buy or sell shares in their company, including needing money for personal reasons or diversifying their investments.

Insiders are of course limited in their actions by insider trading rules and are not allowed to trade if they are in possession of potentially price-sensitive information. Companies may also have internal rules that prevent employees from trading in the shares of the company at certain time periods to prevent possible conflicts of interest.

Nevertheless, and despite all the limitations listed above, insider transactions can sometimes indicate that the top executives have a particular view on the valuation or prospects for their company’s stock at a particular point in time. Very few people would normally sell stock of a business that is performing particularly well!

Two companies with positive insider buying over the last two months
Canadian Tire’s (TSX:CTC.A) share price performed strongly in 2013, gaining 45% and outperforming the broader market. Recent results were very good with a record fourth quarter and a positive outlook statement by the CEO.

The strong results concluded a year with a number of highlights for the company, including spinning off and listing its real estate portfolio and signing high profile sponsorship deals with the Canadian Olympic team and the Ottawa Senators. Insiders, who bought a net $1.5 million worth of company stock over the past few weeks, seem to have confidence that there is more good news to come.

The prognosis for BlackBerry (TSX:BB)(Nasdaq:BBRY) has fluctuated almost on a daily basis over the past year, with the share price reaching a high of $18 early in 2013 at the time of the new mobile phone launches and a low of $6 in early December when the Prem Watsa/Fairfax deal changed. The share price has again almost doubled since the December low.

Like the market, company insiders would seem to agree with the strategy of new CEO John Chen and are putting their money to work with net purchases of $1.3 million over the past few weeks.

Two companies with net insider selling over the past two months
Royal Bank of Canada (TSX:RY)(NYSE:RY) and Toronto Dominion Bank (TSX:TD)(NYSE:TD) have experienced considerable insider selling over the past few weeks. Both banks have recently reported good results for the first quarter (until the end of January) with very few items of concern apparent. Investors also seem to be satisfied, and the share prices moved up or sideways since the results.

The latest short position report by the Toronto Stock Exchange also indicated that substantial short positions against the shares of both these companies have been registered as of 15 February. It seems both insiders and short sellers are perhaps anticipating unfavorable quarterly results.

Foolish bottom line
Insider buying or selling may be motivated by a number of reasons, only one of which is indicative of a view on the business prospects or valuation of the stock. However, it does provide a level of comfort to investors when senior management and directors of companies are buying shares. The opposite is also true, although we would caution not to overemphasise any of these actions in investment decisions.

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This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium service or advisor. We’re Motley! Questioning an investing thesis — even one of our own — helps us all think critically about investing and make decisions that help us become smarter, happier, and richer, so we sometimes publish articles that may not be in line with recommendations, rankings or other content.

Fool contributor Deon Vernooy holds a position in TD Bank.

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