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3 Small-Cap Stocks on Insiders' Radar

2. MDC Partners (MDCA - Get Report)

Market cap.: $413 million

The global advertising industry is dominated by a few massive firms such as Omnicom (OMC), Interpublic (IPG), France-based Publicis (Pink Sheets: PUBGY) and U.K.-based WPP (WPPGY). These firms accounted for a collective $30 billion in revenue last year.

Toiling in their shadow is Canada-based MDC Partners, which is growing at a very rapid pace, thanks to an emphasis on digital advertising. The company's online campaigns, which augment traditional print and broadcast ad campaigns for clients, have helped create industry buzz -- and poach rivals' clients.

MDC's sales have shot up from $400 million in 2006 to $700 million in 2010, and analysts say this figure may top $1 billion by 2012. Still, this stock remains fairly unloved. It hit almost $16 a share in 2004 and recently traded hands at about $14 per share.

This may explain why insiders have been buying stock for nearly two years straight. They bought 51,000 shares in August (at an average price of $16), 5,000 shares in September (at about $14) and, earlier this month, four different insiders combined to buy 30,000 shares at an average price of roughly $14.50.

Where's the stock headed? I figure this high-growth business model is worth at least eight times projected 2012 EBITDA of about $125 million, which would put the stock at $25 a share. That's an incredible potential 80% gain.

3. Derma Sciences (DSCI - Get Report)

Market cap.: $86 million

This is an intriguing health-care play, supported by more than $1 million of insider buying by a small group during the past two months. Derma Sciences generates roughly $60 million in annual sales by selling a range of wound-dressing products such as private-label bandages, gauze-based dressings and advanced wound-care products that have micro-nutrients to aid in healing.

Management is taking the bold step of adding a biotech twist to the business model. Derma's DSC127 drug is a patented formulation that can accelerate healing and reduce scar formation. The product has already been through Phase II clinical testing, and after an upcoming meeting with the FDA, will proceed to Phase III trials in the spring.

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