They might need the cash for a big personal purchase, such as a new house or an expensive boat. 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 by the markets and the risk/reward is no longer attractive. Some even dump their own stock because they have inside knowledge on their sector and they might think that an economic slowdown is in the cards.
But they only buy their own shares 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 doesn't mean it will happen. Insiders can have all the conviction in the world that their stock is a bargain, but if the market doesn't agree with them, the stock could end up going nowhere.
At the end of the day, large institutional money managers running big mutual funds and hedge funds 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 and why 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, warranting a closer look at these stocks. Here's a look at a number of companies whose
per SEC filings.
One technology stock where insiders are loading up big in is
, which provides services for accelerating and improving the delivery of content and applications over the Internet in the U.S. and internationally. It looks like insiders are starting to find some value here since the stock is down over 29% so far in 2011.
This company has a current market cap of $6.1 billion and an enterprise value of $5.5 billion. This stock trades at a trailing price-to-earnings of 34 and a forward price-to-earnings of 18. Its growth rate is estimated to be 9.8% this year and 14% next year. Akamai has a pristine balance sheet, with over $563 million in cash on the books and zero debt.
Akamai's chief scientist and director just
. This is an insider purchase I would pay close attention to because it's coming after the stock has plunged from a yearly high of $52.72 to its current price of around $33 a share.
From a technical standpoint, shares of Akamai have been in a clear downtrend for all of this year. The stock is currently trading below both its 50-day and 200-day
, which is bearish. That said, the stock looks like it might be starting to find some support at around $31.50 to $32 a share. Also, some big-volume buying hit the stock on last Friday (an up day) when over 12.9 million shares traded vs. the three-month average volume of 6 million shares. One could buy the stock here and simply use a mental stop just below $31.50 in case the downtrend isn't over.
It's also worth noting that this stock has a reasonable short interest. The current short interest as a percentage of the float for Akamai is 5.8% as of May 13. The short-sellers have been increasing their bets from the last reporting period by a rather large 20.3%, or by around 1.7 million shares. The bears might be pressing their bets into a support zone for the stock, so watch this one closely because we could get a solid short covering rally in the near future.
Another technology stock whose insiders have been doing some huge buying in is
, a global provider of enterprise-class flash-based solid-state drives that are designed for enterprise-class hardware that companies use to retain and access their critical data. This stock hasn't done much so far in 2011, with shares down around 5%.
Stec has a market cap of $857 million and an enterprise value of $658 million. This stock trades at a very reasonable valuation vs. its estimated growth rate. Shares are currently trading at a trailing price-to-earnings ratio of 17 and a forward price-to-earnings of 11. The company's estimated growth rate is 78% for this year and 22.8% for next year. Stec has a solid balance sheet, with over $190 million in cash on the books and zero debt.
The CEO and the company's president just
. This was the first open market purchase of stock by Stec insiders that I could find in the past couple of years.
From a technical standpoint, this stock has been hammered over the past three months from its highs near $25.50 to its current price of around $16 a share. The stock also recently gapped down from $20 to a low of $14.50 a share. Shares of Stec are currently trading below both its 50-day and 200-day
, which is bearish. That said, we just saw one of the largest upside volume days for Stec in the last seven months, when last Friday 7.6 million shares traded versus the three-month average activity of 1.9 million shares.
Stec has some longer-term support at around $14.50 a share, which is where the stock just found some buying interest. I would like to see this get back above the 50-day and 200-day moving averages on strong volume before I would consider buying this name. If this stock ever trades below $14.50, I would be out of it faster than you could imagine.
It's worth nothing that this is an extremely heavily shorted stock. The current short interest as a percentage of the float as of May 13 is a whopping 32.3%. It looks like for now the shorts are winning the battle until this stock can get back above those key moving averages.
If you're looking for an energy stock where insiders are doing some sizeable buying in, then take a look at
, which, through its subsidiary, operates in the pipeline transportation business. This company held its initial public offering of 95.5 million shares in February at $30 a share. It ran as high as $32 since coming public and recently hit a low of around $27. Shares are currently trading at around $29.
Kinder Morgan has a market cap of $20 billion and an enterprise value of $36 billion. This stock is far from cheap, trading at a trailing price-to-earnings of 75 and a forward price-to-earnings of 23. Since this company is so new to the market, the only growth estimate I could find was for 13.8% for next year. This stock does have an attractive dividend yield of around 4%.
This is not a cash-rich company, considering that it has just $189.50 million in cash on the books and over $15 billion in total debt. That said, natural gas pipeline stocks are notorious for paying out big dividends since they throw off so much free cash flow.
The company's vice president of human resources and administration just
From a technical standpoint, this stock is just starting to poke its head above the 50-day moving average of $28.94 a share, which is a positive sign. Personally, the way that I trade IPOs is to only buy them when they breakout above key technical resistance levels. For KMI, I would watch for a move above $30 to $32 a share on strong volume for possible buying entries.
It's worth noting that hedge fund king
recently bought a huge stake in KMI during the first-quarter. Cohen's SAC Capital bought
Another stock with some big insider buying is
, which provides hygiene and sanitation solutions in North America and internationally. Its solutions include cleaning and sanitizing products and services designed to promote cleanliness and sanitation in commercial and residential environments. This stock is off to a slow start in 2011, with shares off by around 7%.
This company has a market cap of $887 million and an enterprise value of $890 million. Swisher Hygiene has a decent balance sheet, with $105.1 million in cash on the books and around $59 million in total debt.
This company currently is not profitable, and it just posted a loss for the first quarter of $3.2 million, doubling its net loss of $1.6 million a year ago. Swisher Hygiene is attempting to grow its business through acquisitions. The company closed nine acquisitions of hygiene and chemical companies and four purchases of franchises in the first quarter.
A couple of directors just
From a technical standpoint, this stock might have just formed a triple-bottom chart pattern at around $5.30 to $5.40 a share. The stock has tested that level three times in the past month and found some buying interest. One could buy Swisher right here and add to the position if it takes out $6.33 on strong volume. I would add again if it trades above the 50-day moving average of $7.15 a share. Use a mental stop just below $5.30 if you get long this name.
It's worth noting that this stock has a reasonable short interest. The current short interest as a percentage of the float for Swisher sits at around 7.6% as of May 13. We could see some short-covering enter into this name if it breaks above those levels I mentioned above.
One more stock that has seen some big insider buying recently is
( HOTT), which, together with its subsidiaries, operates as a mall and Web-based specialty retailer in the U.S. The company operates Hot Topic and Torrid store concepts, as well as an e-space music discovery concept, ShockHound. This stock is off to a solid start in 2011, with shares up around 20%.
Hot Topic, one of the
, has a market cap of $340 million and an enterprise value of $267 million. This stock trades at a forward price-to-earnings of 34, and its estimated growth rate for next year is 37.5%. The company has around $73 million in cash on its balance sheet and zero debt.
A director just
From a technical standpoint, Hot Topic has been making higher lows and higher highs since the end of March, which is bullish. The stock is now trading just 50 cents off of its
of $8.03 a share. I would look to be a buyer of this stock if it breaks out above that level, and then I would add more to the positions if it takes out its next significant overhead resistance level at $8.50 a share. Only buy if you see strong volume move in on any future breakout.
This is another stock with a reasonable short interest. The current short interest as a percentage of the float for HOTT stands at around 6.2% as of May 13. The bears have also been adding to their positions from the last reporting period by around 24.7%, or by about 538,000 shares.
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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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.