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.
But insiders usually
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
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.
2012 Stock Predictions and Outlook
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 some stocks where
per SEC filings.
One stock whose insiders are doing some notable buying is
, which designs, markets and sells mobile games. Insiders are buying shares of Glu Mobile into strength since this stock is up over 55% in 2011.
Glu Mobile has a market cap of $208.93 million and an enterprise value of $172.52 million. This stock trades at a price-to-sales of 3.14 and a price-to-book of 3.60. Its estimated growth rate for this year is -87.5%, and for next year it's pegged at -33.3%. This is a cash-rich company, with a total cash position on its balance sheet of $37.05 million and total debt of zero.
A director just
, at $2.99 per share. This same director also just
, at $3 per share.
, GLUU is currently trading above its 50-day
and below its 200-day moving average, which is neutral trendwise. This stock has been trading within a sideways trading pattern for the last couple of months, between $3.80 and $2.55. A sustained move outside of that range should setup the next big trend for this stock.
If you're bullish on GLUU, I would consider buying some shares once the stock can manage to move above some near-term overhead
at $3.39 to $3.50 a share on high volume. Look for volume that's running close to or above its three-month average action of 1.6 million shares. If we see that action, I would then add to any long positions once GLUU takes out its 200-day of $3.77 and $3.81 a share with heavy volume. I would simply use a stop that's right below the 50-day at $3.16, in case GLUU isn't ready to break out above the upper end of its range.
Another name that insiders are loading up on in a big way here is
( GEOY), a commercial provider of earth imagery and a provider of image-processing services and geospatial information services to the U.S. and foreign government defense and intelligence organizations, domestic federal and foreign civil agencies and commercial customers. Insiders are finding some deep value here since the stock has dropped 47% in 2011.
GeoEye has a market cap of $498.52 million and an enterprise value of $784.72 million. This stock trades at an extremely cheap valuation, with a trailing price-to-earnings of 10.45 and a forward price-to-earnings of just 9.99. Its estimated growth rate for this year is 1.5%, and for next year it's pegged at 11.4%. This is not a cash-rich company; it has a total cash position on its balance sheet of $218.55 million and total debt of $510.27 million.
A beneficial owner just
, at $21.91 per share. This same beneficial owner also recently
, at $20.96 to $21.55 per share.
From a technical standpoint, GEOY is currently trading below both its 50-day moving and 200-day
, which is bearish. This stock recently formed a perfect double bottom at $17.98 to $18.04 a share, and the subsequently ran up to its recent high of $25.05 a share. Since hitting that high, the stock has now pulled back to its current price of around $22.30.
If you like GEOY from the long side, then I would look to buy off any weakness and simply use a mental that that's just a few percentage points below near-term
at $21.72 a share. If that support level holds, then I would add to any long positions once GEOY takes out $25.05 and $25.52 (its 50-day) with volume. Look for volume that's tracking in close to or above its three-month average action of 318,853 shares.
I also featured GeoEye recently in "
A regional bank player whose insiders are snapping up some shares is
, which manages its business through three segments: banking (including thrift operations), mortgage banking and insurance agency. Insiders are spotting what could be an extremely undervalued stock since shares are off by over 40% in 2011.
Doral Financial has a market cap of $98.18 million and an enterprise value of $3.15 billion. This stock trades at a cheap valuation, with a forward price-to-earnings of just 4.29. Its estimated growth rate for this year is 91.6% and for next year it's pegged at 172%. This is far from a cash-rich company; the total cash position on its balance sheet is $107.14 million, and its total debt is a whopping $2.59 billion.
The CEO and president just
, at 67 cents per share.
, DRL is currently trading below both its 50-day and 200-day moving averages, which is bearish. This stock dropped big from its October high of $1.39 to a recent low of 56 cents. After hitting that low, the stock has started to rebound big and now trades at 79 cents a share. That recent rebound also came with some solid upside volume.
If you're interested in DRL from the long side, then I would look to buy this stock off any weakness and simply place a mental stop just below 70 cents to 65 cents a share. If you get long and those levels hold, then I would add to any long position once DRL takes out 85 cents on high-volume.
Look for volume that registers near or above its three-month average action of 815,083 shares. Target a run back toward 98 cents, or potentially higher if the bulls continue to snap up shares with the insiders in the near future.
A stock in the biotechnology and drugs complex whose insiders have bought up a decent amount of stock is
, which is engaged in developing therapies for the treatment of cancer and inflammatory diseases. Insiders are spotting some deep value here since the stock is off by over 50% in 2011.
Endoyte has a market cap of $155.08 million and an enterprise value of -$14.82 million. Its estimated growth rate for the next quarter is 25.6%, and for next year it's pegged at 17.1%. This is an extremely cash-rich company, with a total cash position of $138.87 million and total debt of just $12.19 million. After you back out the debt, its total cash comes to $126.68 million.
A director just
, at $3.36 per share.
From a technical standpoint, ECYT is currently trading substantially below both its 50-day and 200-day moving averages, which is bearish. This stock recently gapped down huge from over $10 a share to under $4 a share. After that monster gap down that came on
, ECYT went on to hit a low of $3.02.
If you're bullish on ECYT, I would look to get long
above some near-term overhead resistance at $3.28 on high volume. Look for volume that's tracking in close to or above its three-month average action of 439,886 shares. I would use a mental stop just below $3.10 or $3.02 a share, which are both near-term support zones.
Another way to trade ECYT is to buy the stock once it starts to trade back above the gap down day high at $4.29 a share on huge volume. Once that trade triggers, then ECYT should bounce huge as it attempts to refill some of that massive gap down. Keep in mind that stocks with lots of gaps in their charts are risky, so that trade above the gap down day high is a better play since it will demonstrate more strength in this equity.
Och-Ziff Capital Management Group
In the investment services complex, insiders are snapping up shares in
Och-Ziff Capital Management Group
, an institutional alternative asset manager. Insiders are buying this stock into weakness since shares are off by over 40% in 2011.
Och-Ziff Capital Management Group has a market cap of $852.90 million and an enterprise value of $1.41 billion. This stock trades at a cheap valuation; its forward price-to-earnings is just 6.41. This company's estimated growth rate for this year is -48.7%, and for next year it's pegged at 127.6%. This is far from a cash-rich company, with a total cash position on its balance sheet of $170.87 million and total debt of $721.08 million.
The CEO just
, at $7.86 to $7.87 per share. A director also just bought 104,756 shares, or $827,664 worth of stock, at $7.86 to $7.93 per share.
From a technical standpoint, OZM is currently trading below both its 50-day and 200-day moving average, which is bearish. This stock just plunged from its October high of $11.32 down to a recent low of $7.32a share. Since hitting that low, the stock has rebounded and is now flirting with some near-term overhead resistance at $8.50 a share.
One could be a buyer of OCM once it sustains a higher volume move and close above $8.50 and then $9.01 (its 50-day) on high-volume. Look for volume that's tracking in close to or above its three-month average action of 1,582,580 shares. If we get that action soon, then look for OCM to trend back towards $10.50 to $11.97 (its 200-day) a share. Use a mental stop just under $8.50 if you get long off strength or weakness.
To see more stocks with notable insider buying, including
Memorial Production Partners
, check out the
portfolio on Stockpickr.
-- Written by Roberto Pedone in Winderemere, Fla.
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At the time of publication, author had no positions in stocks mentioned.
Roberto Pedone, based out of Windermere, Fla., is an independent trader who focuses on stocks, options, futures, commodities and currencies. He is also an outside contributor to Beconequity.com and maintains the website Maddmoney.net, which he sold to Blue Wave Advisors in 2008. Roberto studied International Business at The Milwaukee School of Engineering, and he spent a year overseas studying business in Lubeck, Germany.