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 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.
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.
Kinder Morgan Management
One stock where insiders are doing some sizeable buying in is
Kinder Morgan Management
. This company operates as a pipeline transportation and energy storage company in North America. Insiders are buying into some mild strength here since shares of KMR are up 17% in 2011.
Kinder Morgan Management has a market cap of $7.6 billion and an enterprise value of $7.58 billion. This stock trades at a price-to-book of 3.04 and it trades at a forward price-to-earnings of 34.13. Their estimated growth rate for this year is 26.1% and for next year it's pegged at 32.2%.
A director just
From a technical standpoint, KMR is currently trading well above both its 50-day and 200-day moving averages, which is bullish. That said, the stock is also flashing some overbought conditions since its current relative strength index reading is 86.94. Any stock that shows a reading over 70 is considered overbought, so KMR is entering extremely overbought territory. This doesn't mean that the stock can't continue to climb higher, but it does mean that caution is warranted.
If you're bullish on KMR, I would consider waiting for a sizable pullback since the RSI reading is so high and the stock is extended by around 8 points from its 50-day moving average of $70.14 a share. I would look to be a buyer near $72 to $71 a share, with a mental stop just a few percentage points below it's the 50-day at $70.14.
Another name that insiders are jumping into in a big way is
. This company is an independent oil and natural gas company engaged in the exploration, exploitation, development and production of onshore North American oil and natural gas properties. Insiders are finding some deep value here since the stock is off by over 40% in 2011.
EXCO Resources has a market cap of $2.24 billion and an enterprise value of $3.83 billion. This stock trades at a reasonable valuation, since their trailing price-to-earnings is 19.53 and their forward price-to-earnings is 12.09. Their estimated growth rate for this year is 6.3% and for next year it's pegged at 19.1%. This is far from a cash-rich company, since the total cash position on their balance sheet is $56.42 million and their total debt is a whopping $1.71 billion.
A beneficial owner just
This same beneficial owner also recently
From a technical standpoint, XCO is currently trading below both its 50-day and 200-day moving averages, which is bearish. This stock recently formed a double top in November at around $13.50 to $13.40 a share. Since forming that top, the stock has dropped sharply to a recent low of $9.40 a share. That drop down to $9.40 has managed to hold and XCO has also held its October low of $9.29 a share. This could mean that the stock is forming a bottom with buyers moving in frequently at around $9.40 to $9.50 in the last few weeks.
If you're bullish on XCO, then one could be a buyer off of any weakness and simply place a mental stop just a few percentage points below $9.29 a share. If you get long off weakness, then look to add once XCO takes out its 50-day moving average of $11.35 with volume. Look for volume on a move over $11.35 that tracks in near or above its three-month average volume of 3,093,140 shares. Target a run toward $12.36 to $13.40 a share if we get a high-volume move over the 50-day in the near future.
Marriott Vacations Worldwide
One real estate operations player where insiders are actively buying some stock in is
Marriott Vacations Worldwide
. This company, along with its subsidiaries, is the worldwide developer, marketer, seller and manager of vacation ownership and related products under the Marriott Vacation Club and Grand Residences by Marriott brands. This stock has done nothing in 2011 with shares off by 4.5%.
Marriott Vacations Worldwide has a market cap of $578.43 million and an enterprise value of $1.39 billion. This stocks trades at a price-to-sales of 0.36 and a price-to-book of 0.35. This is not a cash-rich company, since the total cash position on their balance sheet is $25 million and their total debt is $833 million.
The CEO and president just
From a technical standpoint, VAC recently IPO'ed and hit a high of $22.50 a share on its first day of trading. Since hitting that high, the stock dropped down to a low of $15.75, but it has now rebounded to its current price of $17.17 a share. Shares of VAC could be putting in a near-term double bottom here with the stock finding some buying support near $17 a share.
If you're interested in VAC from the long side, one could be a buyer off of any weakness and simply place a mental stop just under $17 in case the double bottom doesn't hold. If that $17 level holds as support, then look to add aggressively to any long positions once VAC breaks out above some near-term overhead resistance at $18.89 with volume. Look for volume on the breakout that's near or above its three-month average action of 889,061 shares.
Sunrise Senior Living
One stock in the health care facilities complex where insiders have snapped up a large amount of stock in is
Sunrise Senior Living
( SRZ). This company is a provider of senior living services in the U.S., Canada and the United Kingdom. Insiders are paying up to own shares of SRZ since this stock is up over 18% in 2011.
Sunrise Senior Living has a market cap of $368.41 million and an enterprise value of $859.59 million. This stock trades at a trailing price-to-earnings of 14.86 and it trades at a forward price-to-earnings of 129.60. Their estimated growth rate for this year is -171.7% and for next year it's pegged at 113.2%. This is not a cash-rich company, since the total cash position on their balance sheet is $82.93 million and their total debt is $578.08 million.
A beneficial owner just
This same beneficial owner has also bought over $6 million worth of stock in December before the most recent purchase.
From a technical standpoint, SRZ is currently trading above its 50-day moving average and below its 200-day moving average, which is neutral trendwise. This stock recently found some big buying support at around $4.60 a share. The upside volume has picked up dramatically for SRZ in the last few weeks as the stock has bounced from $4.60 to its current price of $6.47 a share.
If you're bullish on SRZ, I would look to be a buyer off any weakness as long as the recent breakout above $5.90 isn't violated. If you get long and that $5.90 level holds, then I would add aggressively to any long positions once it takes out its 200-day moving average of $7.51 with volume. Look for volume that registers near or above its three-month average of 729,492 shares.
One final stock in the banking complex where insiders are buying up some stock in is
. This bank offers full commercial banking services to its business and professional clients as well as complete consumer banking services to individuals living and/or working in the service area.
Eagle Bancorp has a market cap of $289.52 million and an enterprise value of -$262.15. This stock trades at a cheap valuation, since their trailing price-to-earnings is 14.12 and their forward price-to-earnings is just 10.54. Their estimated growth rate for this year is 45.5% and for next year it's pegged at 23.3%. This is a cash-rich company, since the total cash position on their balance sheet is $746.85 million and their total debt is $196.97 million.
From a technical standpoint, EGBN is currently trading above both its 50-day and 200-day moving average, which is bullish. This stock formed a perfect double bottom in September and October at $11.10 to $11.26 a share. Since hitting that bottom, the stock has been uptrending strong and is now nearing a big breakout.
If you're bullish on EGBN, you could be a buyer off any weakness and anticipate the breakout. I would use a mental stop just below the 50-day moving average of $13.96 if you get long off weakness. You could also buy off strength and get long once EGBN breaks out above $14.94 to $15.14 with volume. Look for volume that's tracking in close to or above its three-month average action of 65,851 shares.
To see more stocks with notable insider buying like
, 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.