Cluster buying is one of the most bullish patterns in insider transaction analysis. This is where multiple insiders are buying within a short period of time.
In this report, we are going to highlight some cluster buying activity at International Business Machines Corp (IBM) (IBM:US). IBM is a multinational technology company that offers hardware, software, and middleware. It’s listed on the New York Stock Exchange and currently has a market capitalization of $101 billion.
IBM: insider buying
Form 4 filings show that between 27 October and 29 October, four IBM board members purchased stock. Combined, these insiders acquired 16,750 shares. In total, the insiders spent around $1.8 million on IBM stock.
Source: 2iQ Research
This cluster buying pattern looks interesting for a couple of reasons. Firstly, the insiders have spent a substantial amount of money on stock. This buying activity represents the largest amount of insider buying within a quarter since Q4 2018. This suggests they’re confident the stock is currently undervalued.
Secondly, the last time we saw a similar amount of insider buying at IBM, in Q4 2018, the stock rose around 25% over the next six months.
IBM recently announced that it will split into two public companies. The legacy businesses will be spun off into a new company called NewCo. This will encompass its Managed Infrastructure Services division. The move – which is expected to be completed by the end of 2021 – is an attempt to shift the company’s focus to higher-margin businesses such as cloud computing and artificial intelligence.
“IBM is essentially getting rid of a shrinking, low-margin operation given the cannibalizing impact of automation and cloud, masking stronger growth for the rest of the operation,” said Wedbush Securities analyst Moshe Katri.
Clearly, insiders are confident that the split will create shareholder value. We see the insider buying at IBM as a bullish signal.