WINDERMERE, Fla. (Stockpickr) -- Corporate insiders sell their own companies' stock for a number of reasons.
They might need the cash for a big personal purchase such as a new house or yacht, or they might need the cash to fund a charity. Sometimes they sell as part of a planned selling program that they have put in place for diversification purposes, which allows them to sell stock in stages instead of selling all at one price.
Other times they sell because they think their stock is overvalued and the risk/reward is no longer attractive. Some even dump their own stock because they have inside knowledge that a competitor is eating their lunch and stealing market share.
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But insiders usually buy their own shares for one reason: They think the stock is a bargain and has tremendous upside.
The key word in that last statement is "think." Just because a corporate insider thinks his or her stock is going to trade higher, that doesn't mean it will play out that way. Insiders can have all the conviction in the world that their stock is a buy, but if the market doesn't agree with them, the stock could end up going nowhere. Also, I say "usually" because sometimes insiders are loaned money by the company to buy their own stock. Those loans are often sweetheart deals and shouldn't be viewed as organic insider buying.
At the end of the day, its large institutional money managers running big mutual funds and hedge funds that drive stock prices, not insiders. That said, many of these savvy stock operators will follow insider buying activity when they agree with the insider that the stock is undervalued and has upside potential. This is why it's so important to always be monitoring insider activity, but it's twice as important to make sure the trend of the stock coincides with the insider buying.
Recently, a number of companies' corporate insiders have bought large amounts of stock. These insiders are finding some value in the market, which warrants a closer look at these stocks. Here's a look at several stocks whose insiders have been doing some big buying per SEC filings.
A key insider has bought a huge amount of stock in drug development collaboration company Furiex Pharmaceuticals(FURX), whose product pipeline includes two marketed products and three programs in development, including late-stage compounds, in multiple therapeutic areas. Insiders are paying up to own shares here, with the stock up over 12% so far in 2011.
Furiex has a market cap of $159.97 million and an enterprise value of $101.92 million. The company's estimated growth rate for next year is pegged at 58.7%. This is a cash-rich company, with a total cash position on its balance sheet of $55.69 million and total debt of zero.
A beneficial owner and director just bought 264,070 shares, or $4.2 million worth of stock, at $15.32 to $16 per share.
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From a technical standpoint, this stock is currently trading above its 50-day and 200-day moving averages, which is bullish. The stock is now approaching a major breakout if it can manage to sustain a move and close above overhead resistance at $16.87 and above Wednesday's high of $17.25 a share.
If you're bullish on this stock, I would look to get long once it breaks out and closes above $16.87 to $17.25 on heavy volume. Look for volume that's tracking in close to or above its three-month average action of 60,165 shares. If we see a high-volume move over those levels, then look for this stock to re-test its August high of $19.26.
Another stock whose insiders are doing some notable buying is 8x8(EGHT), which develops and markets telecommunications services for IP, telephony and video applications, as well as Web-based conferencing and unified communications services, managed hosting and cloud-based computing services. Insiders are paying up here to own shares of 8x8 since the stock is up over 65% so far in 2011.
8x8 has a market cap of $251.65 and an enterprise value of $274.39 million. This stock trades at a rich valuation; its trailing price-to-earnings is 43.89, and its forward price-to-earnings is 20.79. Their estimated growth rate for this year is 9.1%, and for next year it's pegged at 58.3%. This is a cash-rich company, with a total cash position on its balance sheet of $19.1 million and total debt of zero.
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A director just bought 41,480 shares, or $153,700 worth of stock, at $3.71 per share.
From a technical standpoint, this stock is currently trading above its 200-day moving average and below its 50-day moving average, which is neutral trendwise. This stock has been making lower highs since it hit $4.95 in September. Shares of EGHT also just failed near the 50-day moving average of $4.19. The stock now looks like it could trade down and re-test some previous support zones near its 200-day moving average of $3.56.
If you're bullish on this name, I would look to buy it off weakness near the 200-day and near the previous support zones at $3.55 to$3.58 a share. I would simply use a tight mental stop that's a few percentage points below those levels, in case the stock doesn't hold support. I would then add to any long position if EGHT trades back above some near-term overhead resistance at $4.25 on heavy volume. Look for volume that's tracking in close to or above its three-month average action of 1.03 million shares.
I also featured 8x8 in "5 Stocks Set to Soar on Bullish Earnings."
One consumer non-cyclical stock whose insiders are buying a lot of shares is non-alcoholic beverage company Coca-Cola(KO), one of TheStreet Ratings' top-rated beverage stocks. This stock has virtually done nothing in 2011 since shares are up only 1.9%.
Coca-Cola has a market cap of $152.24 billion and an enterprise value of $168.61 billion. This stock trades at a reasonable valuation, with a trailing price-to-earnings of 12.32 and forward price-to-earnings of just 16.11. Coca Cola's estimated growth rate for this year is 9.7%, and for next year it's pegged at 8.6%. This is not a cash-rich company; the total cash position on its balance sheet is $16.5 billion, and its total debt is $29.19 billion.
A director just bought 100,000 shares, or $6.7 million worth of stock, at $67.11 per share.
From a technical standpoint, this stock is currently trading above its 200-day moving average and below its 50-day moving average, which is neutral trendwise. This stock topped out in September at around $70 to $71 a share, and it has since fallen to its current price of just over $67. The stock also just failed at some past overhead resistance of $69.09 and has dropped back below the 50-day moving average of $68.20.
If you're bullish on this stock, I would look to be a buyer near some previous support zones at around $63 a share. I consider it bearish that KO has dropped back below the 50-day and if it takes out the 200-day at $66.17, then look to key off that $63 area. If $63 doesn't hold, then look to $60.50 as the next major support zone.
Coca-Cola is one of Warren Buffett's holdings.
Calumet Specialty Products
One stock in the energy complex that insiders have been active in is Calumet Specialty Products(CLMT), a producer of specialty hydrocarbon products in North America. This stock has been trending down a bit in 2011, with shares off by around 10%.
Calumet, one of the highest-yielding energy stocks, has a market cap of $756.99 million and an enterprise value of $1.60 billion. The stock trades at a reasonable valuation its trailing price-to-earnings is 29.28, and its forward price-to-earnings is 7.27. Its estimated growth rate for this year is 58.7%, and for next year it's pegged at 138.4%. This is far from a cash-rich company, with a total cash position of $2.59 million and total debt of $643.04 million.
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The chairman of the board and director just bought 50,000 shares, or $937,000 worth of stock, at $18.74 per share. The president also just bought 16,000 shares, or $302,400 worth of stock, at $18.90 per share.
From a technical standpoint, this stock is currently trading above its 50-day moving average and below its 200-day moving average, which is neutral trendwise. This stock was hammered lower from its July highs of $22.81 to a recent low of $15.57. After hitting that low, the stock rebounded back towards its current price of $19 a share.
If you're bullish on this stock, I would look to buy once it clears its 200-day moving average of $19.76 on heavy volume. Look for volume to register close to or above its three-month average action of 537,955 shares. I would then add to any long position once it clears some more overhead resistance at $20.23 a share. In the near-term, I expect this stock to consolidate some of the recent gains since the relative strength index is flashing a 71 which indicates an overbought condition.
One final stock in the capital goods complex whose insiders are snapping up shares is Flowserve(FLS), a manufacturer and aftermarket service provider of flow control systems. Insiders are finding some value here since they are buying, with shares off by around 20% so far in 2011.
Flowserve has a market cap of $5.27 billion and an enterprise value of $5.84 billion. This stock trades at a reasonable valuation, with a trailing price-to-earnings of 12.84 and forward price-to-earnings of 10.81. Flowserve's estimated growth rate for this year is 11.9%, and for next year it's pegged at 14%. This is far from a cash-rich company, since the total cash position on its balance sheet is $227.89 million and its total debt is $510.05 million.
The CEO and president just bought 7,000 shares, or $639,463 worth of stock, at $91.35 per share.
From a technical standpoint, this stock is currently trading above its 50-day moving average and below its 200-day moving average, which is natural trendwise. This stock just ran into some stiff resistance at around $100 a share and it now looks ready to drop back towards some previous support near $87 or at its 50-day moving average of $85.69.
If you're bullish on this stock, I would hold off on buying it right here since it looks ready to downtrend back toward the 50-day. I would wait and see if it can find buying support near either $87 or $85.69, its 50-day moving average, before getting long. If the downtrend stops near those levels, then look to buy it with a tight mental stop just below the 50-day. If the 50-day doesn't hold, this stock will trend much lower, so key off that area to determine how low it could fall. The next significant support zones below the 50-day are at $79.50 and then $66.84 a share.
To see more stocks with notable insider buying, including Gentiva Health Services(GTIV), Navarre(NAVR) and Colfax(CFX), check out the Stocks With Big Insider Buying portfolio on Stockpickr.
-- Written by Roberto Pedone in Winderemere, Fla.
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