In most of my articles, I try to remind you as often as I can that the insiders may have privileged information about their own companies, but they don’t know everything.
And often times, they either don’t see or just disregard vital information that the market is shouting, and instead they only act on their inside information.
That appears to be exactly what’s happening right now with this insider…
Sometimes everything is just against you, and you simply shouldn’t do something no matter how much you want to.
Maybe you want to go to a restaurant because you just heard that your favorite chef will be there for one day only, but the streets are flooded…
Instead of risking your health to get something you want and probably won’t get in the current conditions, you should do the smart, responsible thing and let this one go.
But I’ve just witnessed one CEO do the equivalent of racing out of his house, jumping in his car, driving as far and as fast as possible, and he likely just got himself stuck in the flooded streets before ever getting to the restaurant.
This CEO just purchased more than 270,000 shares in his own company, Natural Resource Partners LP (NRP), at $12.02 per share. That totals a value of over $3.25 million!
This is some massive insider buying, which isn’t unheard of by any stretch of the imagination. But here are a few reasons why I’m perplexed by it, and why this is a perfect example of why we can’t blindly follow the insiders…
First of all, NRP is currently sitting right around $11.15, its lowest price in at least 3 years. And while some people would call that a discount price, you and I know that it’s simply a testament to how unhealthy NRP is right now.
Next we can look at the financials for NRP…
The gross quarterly profit for this company has been up and down over the past 4 quarters, and the annual gross profit actually fell after at least two years of stagnant growth.
But what does NRP do?
Through its subsidiaries, NRP owns, manages, and leases mineral properties in the United States. And this puts them in the basic materials sector of the market…
Basic materials just happens to be one of the absolute worst sectors at the moment. It’s in the bottom 3 in terms of strength now, and over the past 1, 3, and 6 months.
Basic materials also includes the lowest percentage of stocks advancing within the group, and is in the bottom half of sectors for percentage of stocks making new highs over the past 5 days.
Just look at that list of things giving us a perfect reason to lock this stock in a box, chuck it off a bridge, and throw away the key…
Yet the CEO of NRP has decided to buy shares in his company.
This is exactly why looking at the insiders isn’t the only thing we have to do to give ourselves the best chance to profit. We also have to follow the right indicators and focus on the right aspects of any trade.
That’s exactly what I do with penny stocks as I combine the power of insider transactions with the potential of great penny stocks in my Stock Code Breaker monthly newsletter.
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