WINDERMERE, Fla. (Stockpickr) -- Corporate insiders sell their own companies' stock for a variety of reasons. They might need the money for a big personal purchase such as a house or 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 fully valued. Some even unload their stock because they're worried about the future business environment and they think shares have downside risk.
But they only buy their own shares for one reason: They think the stock is undervalued and has tremendous upside.
The key word in that last statement is "think." Just because a corporate insider thinks his stock is going to go up, that doesn't mean it will. Insiders can have all the conviction in the world that their stock is a bargain, but if the market doesn't agree with them, it's not going to trade higher.
Recently, we've had a number of companies whose corporate insiders were buying 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 a number of
per SEC filings.
If you're looking for a biotech stock trading under $10 with lots of insider buying, then
might be for you. This biopharmaceutical company focuses on discovering, developing and commercializing small molecule drugs to extend and enhance the lives of patients with severe medical conditions, including cancer and chronic inflammatory diseases. This stock is off to a slow start in 2011, with shares down by around 10%.
Synta Pharmaceuticals has a market cap of $230.30 million and an enterprise value of $194.56 million. The company is still in the development stages with its drug product pipeline so has yet to turn a profit. It's cash-rich, though, which should help it through this development stage as it spends on R&D to bring new drugs to market. Synta has around $50.97 million in cash on its books and about $15.32 million in debt. That gives the company $35.65 million in net cash.
Synta's chairman Keith Gollust and two directors
From a technical standpoint, I really like how this stock is setting up since SNTA just started to trade above its 50-day
on big volume. Volume during the last two trading sessions (both up days) registered at 360,000 and 320,000, which is well above the three-month average volume of 153,000 shares. That
moved into the stock as it rocketed right through and above its 50-day moving average of $5.07.
This stock looks ready to launch out of a sideways trading pattern between $4.26 and around $5.50 a share. I would be a buyer of this stock once it trades above some near-term resistance at $5.55 and then I would add to the position again once it takes out more resistance at $6. This stock could well be on its way towards $7 a share or possibly even higher. With shares currently changing hands at around $5.50, that's a lot of upside.
Hallmark Financial Services
Another stock with some notable insider buying is
Hallmark Financial Services
, which, through its subsidiaries, operates as a diversified property and casualty insurance company that serves businesses and individuals. So far in 2011 this stock is pretty much flat, with shares down around 4.6%.
Hallmark has a market cap of $173.87 million and an enterprise value of $172.86 million. The stock trades at a trailing price-to-earnings ratio of 24 and a forward price-to-earnings ratio of 13.29.
A major holder, Detroit Stoker Company, just
. I would also like to point out that the Hallmark's CEO and chairman recently bought some stock.
From a technical standpoint, this stock is trading below both its 50-day and 200-day
. If you're interested in buying this stock, I would probably wait until it gets above both of those moving averages. That would put the stock at over $9 a share, and it would mean that shares could be setting up to trend higher. This stock could also be bought if it trades down to some near-term support at around $8 a share.
Corporate insiders have also been loading up on shares of
, a global provider of technology-enabled asset protection solutions used to evaluate the structural integrity of critical energy, industrial and public infrastructure. This stock is off to a hot start in 2011, with shares up around 34%.
Mistras Group has a market cap of $480.46 million and an enterprise value of $501.40 million. The stock trades at a trailing price-to-earnings of 32 and a forward price-to-earnings of 23.39.
A director just
From a technical standpoint, this stock has been finding support every time it pulls back near its 50-day moving average for the past four months. Trades should now watch the stock for a breakout play if it can manage to trade above $18.25. However, the stock did just gap up from around $16.50 to just above $18 a share. The stock could easily fill that gap first before any attempts at a breakout are made.
Central European Distribution
Corporate insiders are also finding some value at
Central European Distribution
( CEDC), which operates primarily in the alcohol beverage industry. It's easy to see why insiders are buying up stock at CEDC. Shares have been absolutely crushed so far in 2011, with the stock of by around 54%.
This company has a market cap of $733.26 million and an enterprise value of $1.92 billion. This is an extremely cheap stock, with shares currently trading at a forward price-to-earning of just 6.84. Unfortunately, this isn't a cash-rich company when you consider they only have $122.23 million in cash on the books and a whopping $1.3 billion of total debt.
A CEDC director just
From a technical standpoint, this stock is trading very close to its
of $10 a share with the stock currently at $10.30. This stock started off the year at close to $26.25 a share, so if CEDC can find some support down here near $10, then the stock could have some big potential upside. With that in mind, I wouldn't be a buyer of this stock until we see some big upside volume start to come into the name.
I would also like to see this stock start making higher lows and higher highs even in the intermediate trend on the chart. Right now, we have the exact opposite with the stock making lower highs and lower lows. This pattern needs to be broken before this stock can start to mount a comeback.
CEDC showed up last month on lists of
Kraton Performance Polymers
Another company whose insiders are buying big is
Kraton Performance Polymers
, a producer of styrenic block copolymers for use in industrial and consumer applications worldwide. This stock is off to a strong start in 2011, with shares up around 41%.
Kraton has a current market cap of $1.39 billion and an enterprise value of $1.61 billion. This is another cheap stock, with shares currently trading at a trailing price-to-earnings of 14.29 and a forward price-to-earnings of just 10.27.
GMT Capital, a major beneficial owner of over 10% of the company, recently
. What I like about GMT Capital is that the firm has been steadily buying Kraton stock all year and averaging up as the stock has soared. This is smart money management because it's adding to a winning position rather than averaging down on a loser.
From a technical standpoint, this stock just started to break out above some past overhead resistance at around $41.75 a share, and the stock is now trading near all-time highs. This is extremely bullish because it means that just about anyone who has ever bought the stock is making money, and it confirms how strong the uptrend is. I would look to buy this name on any weakness and look for the stock to hit $50 to $60 a share in the next few months.
To see more stocks with notable insider buying, including
, check out the
portfolio on Stockpickr.
-- Written by Roberto Pedone in Winderemere, Fla.
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Please note that due to factors including low market capitalization and/or insufficient public float, we consider MG, HALL, SNTA to be small-cap stocks. You should be aware that such stocks are subject to more risk than stocks of larger companies, including greater volatility, lower liquidity and less publicly available information, and that postings such as this one can have an effect on their stock prices.
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.