How Do Penny Stock Traders Follow The Money?
One of the most exciting things about trading penny stocks is making quick money. But finding companies to add to your watch list can be easier said than done. There are plenty of trading strategies to use to do so, and one of the more popular lately is the “Follow The Money” trend.
What is Follow The Money Trading?
Whether you’re trading penny stocks or higher-priced stocks, the Follow The Money trading strategy is the same. It entails looking at corporate filings and seeing where money is flowing. There might be insiders buying shares of their own companies. It could also be institutional funds snatching up cheap stock in big chunks. Whatever the case, the trading strategy behind following the money is all about publicly released data on large trades from “smart money” and company employees.
How To “Follow” The Money Trading Penny Stocks
The easiest way to find big-money bets on penny stocks is to look into the SEC filings. Here are a few of the most frequently referenced when it comes to these types of transactions:
Form 4 Filing
According to the Securities And Exchange Commission, Form 4 is a “statement of changes in beneficial ownership.”
It must get filed with the commission whenever a material change happens in the holdings of a company’s insiders.
Schedule 13D, Schedule 13G, and Schedule 13F Filings
These Schedules involve parties reporting ownership of stock over 5% of a particular equity class in a company. The SEC defines Schedules 13D and 13G as beneficial ownership reports: “The term ‘beneficial owner’ is defined under SEC rules. It includes any person who shares voting or investment power directly or indirectly (the power to sell the security).”
These filings would be highlighted by traders looking for “Whale” trades as they generally connect to large funds or investment trusts.
- A Schedule 13D gets filed by an “active investor” who owns more than 20% of a company’s outstanding shares.
- A 13G pertains to “passive investors” owning less than 20% of a company’s outstanding shares. Once a “passive investor” reaches over 20% of the OS, they must start filing 13D statements. These are important because we’ll see which large funds or investors are taking a more significant position in a company. These typically lift sentiment for a given company.
- Schedule 13F filings are where things get fun. 13Fs are quarterly reports required to be filed by institutional investment managers with at least $100 million in assets under management.
Read more about filings here: Penny Stocks & Due Diligence: Understanding Important SEC Filings.
Penny Stocks To Buy [According To Insiders]
NGM Biopharmaceuticals (NGM)
Another biotechnology company making moves in the market and with insiders is NGM Biopharmaceuticals. It focuses on drug discovery to research and develop therapeutic candidates including its NGM621. It recently completed its CATALINA trial in three therapeutic areas for cancer, retinal diseases, liver disease, and metabolic disease.
Right now, there are two sides to this story. One side is before the company was a penny stock and the other is now, after it has become one of the stocks under $5. Share prices imploded following a Phase 2 data release that failed to meet primary goals in age-related macular degeneration. However, management seems to remain focused on making progress.
Following the results, CEO David Woodhouse said, “We continue to evaluate various pre-specified secondary endpoints and post-hoc analyses…We expect these additional findings, as well as the absence of treatment-related CNV conversion and the overall clean safety profile NGM621, showed in CATALINA, to provide important information regarding the treatment of patients with GA.”
NGM stock has experienced some incredible volatility in the stock market since the news broke. Shares dropped from over $12 to under $3 and are now back above $4.40.
Follow The Money In NGM Stock
Despite the bad news, it hasn’t stopped insiders from snagging cheap stock. This week, Director David Goeddel reported purchasing 130,000 shares of NGM stock in a trade worth over $460,000.
Cabaletta Bio Inc. (CABA)
We discussed Cabaletta Bio earlier this week in the article “10 Top Penny Stocks To Buy According To Wall Street Analysts In 2022.”
Wells Fargo is the most recent analyst to give their take on CABA stock. The firm maintains an Overweight rating on the company along with a $4 price target. This rating came about a month before the company announced that it received a license from IASO Biotherapeutics. Cabaletta will develop, manufacture, and commercialize a “clinically validated” binder that aids in treating autoimmune diseases.
Now, its CABA-201 has become a centerpiece of its pipeline development progress. Cabaletta plans on an Investigational New Drug application during the first half of 2023. There are also plans to release initial clinical data by 2024 in patients with autoimmune diseases.
Follow The Money In CABA Stock
Adding to the recent excitement is insider activity in CABA stock. This month, multiple insiders and C-level employees participated in the buying spree. When all was said and done, more than $340,000 worth of Cabaletta shares were scooped up.
Imara Inc. (IMRA)
The biotech company Imara Inc. has been on our list of penny stocks to watch for months at this point. We discussed the company at the start of September after some unusual options activity sparked bullish trading in the penny stock. The activity came after the company entered into an asset purchase agreement with Cardurion Pharmaceuticals. The agreement is to sell tovinontrine and other assets of its PDE9 program for $34.75 million. Fast-forward a few more weeks and this month Imara announced a merger agreement with Enliven Therapeutics to create a company focusing on Enliven’s portfolio of oncology programs.
With the merger expected to finalize next quarter, investors and insiders have grown even more bullish. The newly formed company, Enliven, will further advance pipeline candidates, including ELVN-001 and ELVN-002.[READ MORE] Best Penny Stocks To Buy Now? 4 Low Float Stocks To Watch This Week
Follow The Money In IMRA Stock
Institutional investor and 10% owner of IMRA stock, Ra Capital, is the one doing the big buying this month. The firm scooped up another 506,197 shares at an average price of $3.68.