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Boom Or Bubble? Insiders Like The Look Of These 3 Biotech Stocks

Mary-Lynn Cesar, Kapitall: They can be volatile, but are there investing ideas among biotech stocks that insiders are buying?

Biotech stocks are having quite the year. There were over 30 companies with IPOs so far, and the NASDAQ Biotechnology Index has grown by 67.8% over the last twelve months, more than double the 32.1% recorded by the benchmark S&P 500 index.

(Read more on Biotech from Kapitall: Biotechs Climb and Crumble on Catalysts in 2013)

However, the increased investment activity and skyrocketing stock prices have led to much talk of a bursting biotech bubble. Within the last month, Barron's, Bloomberg, Financial Times, Forbes, and The  Wall Street Journal have all discussed the biotech industry, wondering if it's experiencing a bubble or a boom, and when the potential bubble may burst.

This inspired us to run a screen for the investor who may believe that the biotech industry is experiencing a boom, and that there's no bubble in sight. We decided to look for an indicator amongst biotech stocks that good things may still come for these companies.

Investing ideas

To begin, we constructed a universe comprised of biotechnology stocks. We then looked for stocks with significant net insider purchases over the last six months representing 2% of share float or higher.

Since insiders work at the companies in question, they have more knowledge about the firms than outsiders. Therefore, when they use their own money to purchase shares of their company's stock, it may indicate they are bullish about the firm's future and believe current share price is undervalued.

We were left with three stocks on our list:

Click on the interactive chart below to see analyst ratings over time.

Do you think insiders are right with their bullish sentiment towards these stocks? Use this list as a starting point for your own analysis.

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