Penny stocks are often priced under $5 per share. They attract traders seeking big gains. But, these stocks also carry significant risks. One smart strategy is to track insider trading via SEC filings. Insiders, like directors and officers, often access vital, non-public information. Their trade patterns can offer valuable information to investors.
Insider Trading and Penny Stocks
Monitoring insider buying and selling can reveal clues about potential penny stocks to trade. Insider transactions are a crucial part of investment decisions. But they require careful analysis. This article looks at using insider activity for penny stock investment. We discuss risks, rewards, and best practices. We also discuss penny stocks with recent insider buying.
What Is SEC Form 4?
SEC Form 4 is required to be filed by company insiders or certain shareholders when they engage in transactions involving the company’s stock. An insider, in this context, usually refers to officers, directors, and significant shareholders (holding more than 10% of the company’s outstanding stock).
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The purpose of Form 4 is to provide transparency and inform the public about insider transactions in a timely manner. This form helps to disclose potential conflicts of interest and prevents illegal insider trading by making the transactions of key individuals within a company public knowledge.
Key aspects of SEC Form 4 include:
- Identification of the Insider: The form identifies who is making the transaction, their role in the company, and their relationship to the company.
- Details of the Transaction: It includes specifics such as the date of the transaction, the type of security (like common stock or options), the amount of securities traded, and the price at which the transaction was executed.
- Nature of the Transaction: The form indicates whether the transaction was a purchase, sale, exercise of options, or other types of transactions.
SEC Form 4 is a crucial document for investors and analysts who track insider trading patterns as part of their investment strategy. It offers insights into how insiders are acting in relation to their own company’s stock, which can sometimes signal their confidence in the company’s future prospects or lack thereof.
Legal Insider Trading Explained
Corporate executives, board members, and large shareholders are ‘insiders.’ They must follow strict rules when trading their company’s stocks. Trading on confidential, crucial information is illegal. But there are legal ways for them to trade. Exercising stock options in compensation packages is one method. These transactions follow predefined rules on timing and share volume.
Another legal method is using 10b5-1 trading plans. These plans set future trades at specific times to avoid insider trading accusations. Insiders might also trade based on public information. Or they might trade on events unlikely to impact share prices much. They can also trade based on independent advice, not linked to their insider status.
Using Insider Trading Data for Penny Stock Picks
The SEC keeps a close watch on insider trades to prevent illegal activities. For investors, tracking legal insider trades through SEC disclosures is valuable. It helps identify promising penny stocks. Recently, certain stocks have shown interesting insider trading activity. Here are 5 that fit the mold.
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Here’s what insiders are thinking right now:
Atara Biotherapeutics, Inc. (ATRA)
The company specializes in T-cell immunotherapy. They focus on developing therapies for cancer and autoimmune diseases using their Epstein-Barr virus (EBV) T-cell platform.
Recently, Atara announced results from its Phase 2 EMBOLD study of ATA188 for non-active progressive multiple sclerosis (PMS). The study didn’t meet its primary endpoint of confirmed disability improvement. No new safety issues were identified. Atara is reviewing the data, including a 6% disability improvement in the treatment arm. The company plans to reduce expenses on ATA188 and focus on advancing its allogeneic CAR-T pipeline. They anticipate extending their cash runway beyond Q3 2025.
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This update has clearly impacted Atara’s stock price. The failure to meet the primary study endpoint might concern investors. However, the company’s strong pipeline and financial planning could be seen as positive. That may be a sentiment shared by company insiders this month.
Directors William Heiden and Eric Dobmeier purchased several hundred thousand shares apiece in November. The majority were bought by Dobmeier on November 10th with a total of 446,825 shares of ATRA stock at an average price of $0.2268.
Gossamer Bio, Inc. (GOSS)
Another clinical-stage biopharmaceutical company, Gossamer Bio, focuses on developing seralutinib for pulmonary arterial hypertension (PAH).
In the recently published third-quarter financials, Gossamer announced progress in the seralutinib Phase 3 PROSERA Study. They reported positive feedback from the global Phase 3 PROSERA Study’s site and country activations. Gossamer presented encouraging results from the Phase 2 TORREY lung imaging sub-study at the European Respiratory Society International Congress.
Financially, the company’s cash and marketable securities stood at $328.9 million as of September 30, 2023. R&D expenses decreased to $31.2 million, and the net loss for the quarter was $40.0 million. Gossamer expects sufficient funding for operations into the first half of 2026.
These developments seem to have influenced Gossamer’s stock price over the last few days. Positive clinical trial progress and reduced R&D expenses might be viewed favorably. However, the substantial net loss could raise concerns. A balanced view would consider both the potential of the drug pipeline and the financial challenges faced by the company. This could be something insiders are considering as well.
This month company COO/CFO Brian Giraudo picked up 200,000 shares of GOSS stock. He paid an average price of $0.5644 on November 13th.
PureCycle Technologies, Inc (PCT)
PureCycle specializes in plastic recycling and focuses on converting waste plastic into high-quality resin. It also recently reported earnings showing both progress and challenges in their third quarter of 2023. They processed 409k lbs of feed and shipped their first commercial Ultra-Pure Recycled resin. Operational challenges at their Ironton facility included mechanical issues affecting pelletization. These are expected to be resolved with a two-week outage in November. PureCycle raised $250 million through Green Convertible Senior Notes and negotiated a delay for milestone completion with Ironton Bondholders.
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The company’s CEO, Dustin Olson, acknowledged operational challenges but remains confident about future success. CFO Larry Somma noted the successful closing of Green Senior Convertible Notes. This will support equity investment in their Augusta project. PureCycle plans to meet the next milestone of producing 4.45 million pounds of resin by December 2023.
Now the attention could be on insiders buying PCT stock. Director Fernando Musa, CEO Dustin Olson, Executive Daniel Coombs, and general council Brad Kalter all purchased shares of PureCycle this month. In total, over 120,000 shares were purchased with Olson accounting for the largest buy at 68,190 shares with an average purchase price of $3.22.
Blade Air Mobility, Inc. (BLDE)
The “urban air mobility” company offers short-distance helicopter and jet services. Blade announced positive Q3 2023 financial results this month. Key highlights included a 56% increase in revenue to $71.4 million and a net income of $0.3 million. The company achieved positive Free Cash Flow and Adjusted EBITDA profitability.
Blade reported strong growth in its MediMobility Organ Transport business and its European operations. Strategic advancements included a new security checkpoint at Nice International Airport and a Blade heliport in Atlantic City. They also launched a new organ placement service.
Blade’s CFO, Will Heyburn, emphasized their focus on optimizing cost efficiencies and growing revenue. Blade’s President, Melissa Tomkiel, highlighted progress in optimizing aircraft capacity agreements to expand profit margins in both their Medical and Passenger segments.
The financial performance of Blade Air Mobility has positively influences its stock price over the last week. BLDE stock surged from around $2.25 to highs this week of nearly $4. The significant revenue growth and transition to profitability are positive indicators for investors. However, the company’s ongoing need to optimize operations and expand profit margins could be areas of concern. A balanced view would weigh the potential of the urban air mobility market against operational and competitive challenges.
Director Eric Affeldt picked up 50,000 shares of BLDE stock this week at an average price of $3.1968.
FTC Solar, Inc. (FTCI)
Solar stocks are starting to come back in a brighter light this week and FTCI stock is on that list of penny stocks to watch. FTC Solar, Inc. specializes in solar tracker systems, software, and engineering services. They focus on solar energy solutions. Like others on this list of penny stocks, it also announced Q3 2023 results. In addition, there has also been a leadership transition.
Q3 revenue was $30.5 million, an 84% year-over-year increase but a 5.6% drop quarter-over-quarter. The company continues to improve its cost structure, with a stronger gross margin as a result. They have a project backlog of roughly $1.6 billion. CEO Sean Hunkler and CFO Phelps Morris will depart in December 2023. Cathy Behnen is the interim CFO. The company expects a revenue dip in Q4 2023, followed by a strong recovery in Q1 2024.
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The revenue increase and large project backlog might be viewed positively. However, the leadership change and expected short-term revenue dip could be concerns. A balanced view would consider the potential for recovery and growth against current challenges and leadership transition.
Regardless, insiders are paying close attention to FTCI stock at the moment. The insider trading action comes from Director Ahmad Chatila and COO Sasan Aminpour. Each purchased over 200,000 shares at average prices ranging between $0.39 and $0.498.
List Of Penny Stocks To Buy According To Insiders
- Atara Biotherapeutics, Inc. (NASDAQ: ATRA)
- Gossamer Bio, Inc. (NASDAQ: GOSS)
- PureCycle Technologies, Inc (NASDAQ: PCT)
- Blade Air Mobility, Inc. (NASDAQ: BLDE)
- FTC Solar, Inc. (NASDAQ: FTCI)
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