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.
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 large buying is
, which is a developer of high-precision, analog and mixed-signal integrated circuits for a range of audio and energy markets. This stock has been pretty much dead money in 2011, with shares up by around 1.8%. That said, insiders are stepping up and buying stock here after the stock gapped down big this month from $17 to under $14 a share.
That large gap down in price was due to the company's reporting disappointing results for its latest quarter and issuing a cautious outlook. Since that gap down, the stock has rallied back and now trades just over $16 a share.
Cirrus Logic has a market cap of $1.05 billion and an enterprise value of $819.91 million. The stock trades at a cheap valuation, with a trailing price-to-earnings of 6.5 and a forward price-to-earnings of 11.71. Cirrus Logic's estimated growth rate for this year is -4%, and for next year it's pegged at 16.8%. This is a cash-rich company, with a total cash position on its balance sheet of $139.40 million and total debt of zero.
A director just
. The president and CEO also just bought 6,500 shares, or $96,980 worth of stock, at $14.92 per share.
From a technical standpoint, this stock is currently trading above its 50-day moving average and below its 200-day
, which is neutral trendwise. The stock jumped sharply on Wednesday by over 9% on above-average volume. Volume registered 4.1 million shares, which is well above its three-month average volume of 2.6 million shares.
If you're bullish on this stock, I would look to be a buyer on some significant weakness since it spiked so much Wednesday. It's important to know that this stock has been trading range-bound for the past couple of months between $18.50 on the upside and $13 on the downside. Once could look to buy this stock closer to the lower end of that range if we get and significant weakness in the near future. Or you can
once it takes out $18.35 to $18.50 a share on
. Don't buy the middle of the range unless you're simply trading it intraday for quick pops.
A key insider has also done some noteworthy buying in
, a supplier of technology, integrated project management and information solutions to the oil and gas industry. It looks like the smart money has spotted some value here since insiders are buying with the stock off by close to 16% so far in 2011.
Schlumberger has a market cap of $93.9 billion and an enterprise value of $96.9 billion. This stock trades at a cheap valuation, with a trailing price-to-earnings of 20.6 and a forward price-to-earnings of 13.6. Schlumberger's estimated growth rate for this year is 30.8%, and for next year it's pegged at 36.4%. This is far from a cash-rich company, since the total cash position on its balance sheet is $6.06 billion and its total debt is $11.48 billion.
The CEO just
. Back in early August, a director also bought 2,700 shares, or $210,420 worth of stock, at $74.60 per share.
, this stock is currently trading just above its 50-day moving average and well below its 200-day moving average, which is neutral trendwise. This stock recently plunged from its July high of $95.22 a share to a recent low of $54.79 a share. After hitting that low, the stock rebounded sharply to its current price of just under $70 a share.
If you're bullish on this name, I would look to buy the near-term breakout once it trades above some overhead resistance at $70.52 to $71 a share on heavy volume. Look for volume that's tracking in close to or above its three-month average volume of 12.7 million shares. Target a run back toward $75 to possibly the 200-day moving average of $82.28 a share if the breakout is the real deal. You could simply use a mental stop just below the 50-day in case the sellers take back control of this stock.
Schlumberger, one of the
, was highlighted recently in "
In the property and casualty insurance complex, a key insider has been active in
. This is another situation in which insiders are finding some deep value and buying the stock into weakness since shares are off by over 25% in 2011.
Platinum Underwriters has a market cap of $1.25 billion and an enterprise value of -$190.92 million. This stock currently trades at a cheap valuation, with a forward price-to-earnings of just 7.85. That said, the valuation is based on the company's returning to profitability in 2012. Platinum's estimated growth rate for this year is -222.5%, and for next year it's pegged at 185.5%.
This is an extremely cash-rich company; its total cash position is $1.67 billion, and its total debt is just $250 million. Platinum's total cash per share is $44.81, so with the stock trading at around $33.50, it's actually trading well below its cash-per-share value.
The CEO and president just
. The CFO also just bought 3,300 shares, or $99,398 worth of stock, at $30.12 per share.
From a technical standpoint, this stock is currently trading above its 50-day moving average and below its 200-day moving average, which is neutral trendwise. This stock just broke out to the upside of its sideways trading pattern between $28 and $32 a share on strong volume.
If you're bullish on this stock, I would look to get long off any weakness and simply use a mental stop a few percentage points below the upper end of the range at $32 to $31.50 a share. I would add aggressively to any long position once this stock takes out its 200-day moving average of $35.49 and some overhead resistance at $35.78 on strong volume. Look for volume that's tracking in close to or above its three-month average action of 388,600 shares.
A stock in the regional banking sector whose insiders have done some notable buying in is
, which operates in Puerto Rico and the U.S. Insiders are sniffing out some deep value here since this stock is off by a whopping 43% so far in 2011.
Popular has a market cap of $1.81 billion and an enterprise value of $6.45 million. The stock trades at a cheap valuation, with a forward price-to-earnings of 5.53. The company's estimated growth rate for this year is 483.3%, and for next year it's pegged at 39.1%. This is far from a cash-rich company, since the total cash position on its balance sheet is $840.08 million and its total debt is over $5 billion.
The CFO and vice president just
From a technical standpoint, this stock is currently trading just above its 50-day moving average and substantially below its 200-day moving average, which is neutral trendwise. This stock topped out in June and July near $2.90 a share and recently hit a low of $1.20 a share. Since printing that low, the stock has rebounded to its current price of just over $1.75 a share.
What's interesting to note here is that this stock saw one of its largest volume days since early 2010 last Friday when over 54 million shares changed hands as the stock closed higher.
If you're looking to buy this stock, I would look to get long once it breaks out above some near-term overhead resistance at $1.82 to $1.88 a share on heavy volume. Look for volume that's tracking in close to or above its three-month average action of 11.8 million shares. If that breakout triggers, I would add to any long position once the stock takes out some more overhead resistance at $2.20 a share with solid volume. Target a run back towards the 200-day moving average of $2.62 a share.
One could simply use a mental stop that's just a few percentage points below the 50-day in case this stock isn't ready to trend higher.
Popular shows up on a recent list of
One extremely speculative penny stock in which a key insider has been doing some large buying is
, a specialty retailer of women's apparel, accessories and jewelry and gift items. Make no mistake about it: This stock has been absolutely destroyed by the sellers this year, with shares off by over 65%. Insiders are clearly taking advantage of the plunging stock to buy shares at what I am sure they believe is a big discount.
Coldwater Creek has a market cap of $93.61 million and an enterprise value of $87.06 million. This company is currently not profitable yet, with an operating cash flow of -$36.6 million and a levered free cash flow of -$6.43 million. Coldwater Creek's estimated growth rate for this year is -168.2%, and for next year it's pegged at 39.8%. This is barely a cash-rich company, with a total cash position of $31.43 million and total debt of $27.75 million. After you back out the debt, Coldwater has $3.68 million of cash on their books.
The CEO and chairman of the board just
. The same CEO has now bought around $8.4 million worth of stock (including this recent buy)
, between $1.50 and 85 cents a share.
From a technical standpoint, this stock is currently trading well below both its 50-day and 200-day moving averages, which is bearish. During the past two months, this stock has been down trending hard and mostly making lower highs and lower lows, which is also bearish. That said, the stock has been known to make some monster spikes higher whenever it trades near 80 cents.
If you're looking to buy this stock, I would get long for a trade the next time it moves above its 50-day moving average (right now $1.14) with strong volume. Look for volume that's tracking in close to or above its three-month average action of 1.19 million shares. Volume for the past week has started to track in strong on the up days, so we could be close to another big spike in the near future. This is an extremely speculative stock though, so I would only be looking at this for a quick trade.
To see more stocks with notable insider buying, 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.