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.
2012 Stock Predictions and Outlook
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 that insiders are doing some notable buying in is
, a global branded consumer products company, with products categories such as consumer batteries, small appliances, pet supplies and portable lighting. This stock is down around 11% in the past six months.
Spectrum Brands has a market cap of $1.45 billion and an enterprise value of $2.9 billion. This stock trades at forward price-to-earnings of 9.60. Its estimated growth rate for this year is 36.1%, and for next year it's pegged at 16.9%. This is far from a cash-rich company, since the total cash position on its balance sheet is $142.41 million and its total debt is a whopping $1.58 billion.
A beneficial owner just
, at $27.15 to $27.61 per share.
, SPB is currently trading above both its 50-day and 200-day moving averages, which is bullish. This stock has been trading within a range for the past five months between $22 and $28.36 a share. The stock is now starting to challenge a big breakout above the upper end of that range with shares currently changing hands at around $28.24.
If you're bullish on SPB, I would look to be a buyer once this stock sustains a
and close above $28.36 to $28.86 a share. Look for volume that's near or above its three-month average action of 169,667 shares.
I mentioned that $28.86 level because that's another past resistance price that will need to be cleared to trigger an even bigger breakout. If SPB takes out $28.36 and $28.86 with volume, then look for this stock to make a run at $32 to $35 a share or possibly even higher.
Spectrum, one of TheStreet Ratings'
, shows up on a list of
for the most recently reported quarter.
Another name that insiders are scooping up is
, a manufacturing company serving aerospace and defense customers. Insiders are finding some decent value here since this stock is off by over 25% in the last six months.
Esterline Technologies has a market cap of $1.74 billion and an enterprise value of $2.62 billion. This stock trades at a cheap valuation, since its trailing price-to-earnings is 13.34 and its forward price-to-earnings is 9.31. Its estimated growth rate for this year is 9.1%, and for next year it's pegged at 15.5%. This is far from a cash-rich company, since the total cash position on its balance sheet is $185.04 million and its total debt is just over $1 billion.
The CEO and chairman of the board just
, at $56.03 per share. A director and the CFO also recently purchase over $300,000 worth of stock, at $51.67 to $51.70 per share.
From a technical standpoint, ESL is currently trading above its 50-day
and below its 200-day moving average, which is neutral trendwise. This stock recently formed a double bottom at around $48.50 to $50 a share. Since hitting that bottom, the stock has run up to its current price of just over $57 a share. This run up has put the stock in a position to challenge some near-term
If you're bullish on ESL, then you could be a buyer once this stock takes out $59.21 and $60.31 with volume. Look for volume on a move above those levels that's near or above its three-month average action of 310,370 shares. If we get that move soon, I would then add to any long positions once this stock takes out $62 with volume. Target a run back toward the 200-day moving average of $65.14 a share.
A biotechnology and drugs player that insiders are doing some notable buying in is
, which is engaged in the research, development and commercialization of products for the prevention and treatment of serious infectious diseases, including products for use in defense against biological warfare agents such as smallpox and arena viruses. Insiders must see some big opportunity here since this stock is down a whopping 70% in the last six months.
Siga Technologies has a market cap of $146.03 million and an enterprise value of $135.68 million. This stocks trades at a price-to-sales of 13.68 and a price-to-book of 3.22. Its estimated growth rate for this year is 200%, and for next year it's pegged at -132.3%. This is a cash-rich company, with a total cash position on its balance sheet of $12.41 million and total debt of zero.
A director just
, at $2.44 per share.
From a technical standpoint, SIGA is currently trading below above its 50-day moving average and below its 200-day moving average, which is neutral trendwise. This stock recently put in a near-term bottom at $1.78 a share, and since then it has run up to its current price of $2.88. Shares of SIGA recently broke out above some near-term overhead
at $2.74 on solid volume.
If you're a bull on SIGA, you could be a buyer of this stock once it
above $2.98 to $3 a share with volume. Look for volume on the breakout that's near or above its three-month average action of 485,921 shares. If we get that action soon, then I would target a run back towards $3.35 to $3.60 in the near-term. I would simply use a mental stop just below the breakout level of $2.74 in case SIGA isn't ready to break out just yet.
In the health care facilities complex, insiders have snapped up a decent amount of shares in
, which provides post-acute health care services to patients through its home nursing agencies, hospices and long-term acute care hospitals. Insiders have spotted some deep value here since this stock is off by over 40% in the last six months.
LHC Group has a market cap of $252.40 million and an enterprise value of $279.29 million. This stock trades at a forward price-to-earnings of 9.45. Their estimated growth rate for this year is -36.9% and for next year it's pegged at -16%. This is not a cash-rich company, since the total cash position on their balance sheet is $11.13 million and their total debt is $54 million.
A beneficial owner just
, at $12.92 per share. This same beneficial owner has also bought over $2.6 million worth of stock since November 2011.
, LHCG is currently trading below both its 50-day and 200-day moving averages, which is bearish. This stock recently found some big buying support at around $12.34 to $12.53 a share, which could mean the stock is putting in a near-term bottom.
If you're bullish on LHCG, I would look to be a buyer off this stock if it can manage to sustain a move and close back above its 50-day
of $13.88 with volume. Look for volume that's near or above its three-month average action of 165,475 shares. You could also buy this stock off any weakness with a mental stop just below $12.34. I would then add to any long positions if LHCG takes out some near-term overhead resistance levels at $14.49 to $14.79 with volume.
One more stock that insiders are purchasing is
, an online retailer offering discount brand- name, non-brand-name and closeout merchandise, including home decor, kitchenware, watches and jewelry, and electronics and computers. Insiders have spotted a potential bargain here since the stock is off by over 50% in the last six months.
Overstock.com has a market cap of $167.82 million and an enterprise value of $133.18. This stock trades at a price-to-sales of 0.16 and a price-to-book of 10.92. Its estimated growth rate for this year is -140.7%, and for next year it's pegged at 54.2%. This is a cash-rich company, with a total cash position on its balance sheet of $79.14 million and total debt of $37.52 million.
A beneficial owner just
, at $7.75 per share.
From a technical standpoint, OSTK is currently trading below both its 50-day and 200-day moving averages, which is bearish. This stock has been stuck in a bearish downtrend since it formed a double top at $15.93 back in July of last year. During this downtrend, the stock has been consistently making lower highs and lower lows, which is bearish price action.
If you're bullish on OSTK, I would wait until the price of this stock stabilizes and starts to trend sideways. Buying shares of OSTK right now is basically trying to catch a falling knife since the stock has just broken some near-term support at $7.75 a share. That said, the stock is nearing an oversold condition since its current RSI reading is 32. Wait for this stock to stabilize and start making higher lows before you jump in for a quick rebound trade.
To see more stocks with notable insider buying, including
Image Sensing Systems
(SPRT), check out the
portfolio on Stockpickr.
-- Written by Roberto Pedone in Winderemere, Fla.
Follow Stockpickr on
and become a fan on
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.