An influential group of Eli Lilly insiders scooped up shares of the obesity drugmaker — a major show of confidence that has us warming back up to the beaten-up stock. Accordingly, we’re double upgrading Lilly back to our buy-equivalent 1 rating from a 3. If not for our trading restrictions, we would be repurchasing at least some of the shares we sold in late July at nearly $774 apiece, before the stock got crushed on disappointing trial data for its hotly anticipated obesity pill. That was the main reason why we downgraded Lilly to a 3 last week on the day of its second-quarter earnings report. However, investing is all about having strong opinions that you hold loosely — and when the facts change, or new information comes to light, you have to be ready to change you view. Such is now the case with Lilly. We got bullish new information last night in a series of filings with the Securities and Exchange Commission. Eli Lilly CEO David Ricks and four other insiders at the company — two other executives and two members of the board of directors — purchased additional stock in the company. The buys were as follows, according to SEC filings: Ricks: $1,052,263.01 (1,632 shares at an average of $644.769 apiece) Chief Scientific Officer Daniel Skovronsky: $634,405 (1,000 shares at an average of $634.405 apiece) Executive Ilya Yuffa: $783,762.5 (1,250 shares at an average of $627.01 apiece) Director Erik Erik Fyrwald: $1,005,242.35 (1,565 shares at an average of $642.32738 apiece) Director Gabrielle Sulzberger: $75,018.294 (117 shares at an average of $641.182 apiece) So, why does this matter? Tracking the stock sales and purchases of executives and board members is an important thing for investors to do, as we discussed a few years ago at length . The heart of the matter: There are many reasons for an insider to sell stock — taxes, funding large purchases and charitable gifts, to name a few. There is only one reason to buy a stock, though, and that’s because you believe it’s undervalued and should move higher. The purchase by Fyrwald, who joined Lilly’s board two decades ago, is particularly noteworthy, as Jim Cramer highlighted on the Morning Meeting. In addition to his board seat, Fyrwald is the CEO of International Flavors & Fragrances. Rather than allocate that $1 million purchase to his own stock, he is buying Eli Lilly instead. The CEO buying stock is one thing – yes, you only buy stock if you think it’s going higher, but there is no denying that the CEO knows it will also send a positive signal to investors. In a hard-hit stock, an investor who is tempted to buy the dip may well be asking why the CEO isn’t doing it too? It’s a bit different with board members. A director can easily decide to not step in and nobody would bat an eye, especially a board member that is also the CEO of another well-known publicly traded company. Nobody is going to get that person for not doing. So, the fact that Fyrwald did step in here and now, in our view, has nothing to do with sending a positive signal investors and everything to do with what he believes is an opportunity to make money. The market is listening. Shares of Lilly climbed nearly 3% in Wednesday’s session, but the stock is still down almost 20% from where it traded in late July. (Jim Cramer’s Charitable Trust is long LLY. See here for a full list of the stocks.) As a subscriber to the CNBC Investing Club with Jim Cramer, you will receive a trade alert before Jim makes a trade. Jim waits 45 minutes after sending a trade alert before buying or selling a stock in his charitable trust’s portfolio. If Jim has talked about a stock on CNBC TV, he waits 72 hours after issuing the trade alert before executing the trade. THE ABOVE INVESTING CLUB INFORMATION IS SUBJECT TO OUR TERMS AND CONDITIONS AND PRIVACY POLICY , TOGETHER WITH OUR DISCLAIMER . NO FIDUCIARY OBLIGATION OR DUTY EXISTS, OR IS CREATED, BY VIRTUE OF YOUR RECEIPT OF ANY INFORMATION PROVIDED IN CONNECTION WITH THE INVESTING CLUB. NO SPECIFIC OUTCOME OR PROFIT IS GUARANTEED.
