James Dennin, Kapitall: One way to evaluate small cap stocks is by looking for insider buying, when people on staff are buying shares. Investors should consider positive trends in insider buying when evaluating small-cap stocks. While that sounds illegal, insider buying is permissible if you're trading on information that is open to the public. [Read more from Kapitall: There are only 3 hotel stocks that are more valuable than Airbnb] For many reasons, company insiders have a better outlook on a stock's potential growth than analysts do. With knowledge of their field, insight into their company's future plans, and understanding of inventory and supply-lines, insiders have information at their fingertips that vastly outweighs the data available to analysts. Nevertheless, it's crucial that you look at the context of the insider buying and selling – is it a single marketing executive raising money for his kid's college tuition? Or are a number of executives loading up on shares, signalling confidence in their business plan and exciting announcements on the horizon? It's important to understand that this strategy really only applies to smaller companies. For a big conglomorate like Coke (KO) or General Electric (GE), the activities of a single department aren't usually enough to move the needle for the whole company. And executives in New York won't necessarily be privy to the details of what's going on at corporate offices in India. For smaller companies, however, it can be a great way to screen for stocks within an unfamiliar niche market. And with riskier plays, it's always a comfort to see management that's putting their money where their mouth is. We decided to build a list of rallying stocks with spikes in insider buying. So we started with a universe of equities that are all trading at least 30% above their 50-day simple moving average (SMA 50). Taking this list of around 200 companies, we futher screened the list for companies who'd seen at least 1% of their float purchased by company insiders. That left us with 4 small cap stocks on our list.
Click on the interactive chart below to view data over time.1.BG Medicine, Inc. ( BGMD):Engages in the development and commercialization of novel cardiovascular diagnostic tests to address unmet medical needs in the United States. Market cap at $39.36M, most recent closing price at $1.32. Over the last six months, insiders were net buyers of 2,250,000 shares, which represents about 9.08% of the company's 24.77M share float. SMA 50: 37.54%.
2.CEL-SCI Corp. ( CVM):Engages in the research and development of drugs and vaccines. Market cap at $73.77M, most recent closing price at $1.53. Over the last six months, insiders were net buyers of 556,825 shares, which represents about 1.11% of the company's 50.39M share float. SMA 50: 41.08%.
3.GigaMedia Ltd. ( GIGM):Engages in the operation of online games for online game players in Asia. Market cap at $76.08M, most recent closing price at $1.50. Over the last six months, insiders were net buyers of 961,200 shares, which represents about 2.47% of the company's 38.95M share float. SMA 50: 31.77%.
4.Idera Pharmaceuticals, Inc. ( IDRA):Develops DNA- and RNA-based drug candidates for the treatment of infectious diseases, autoimmune and inflammatory diseases, cancer, and asthma and allergies, and for use as vaccine adjuvants. Market cap at $260.6M, most recent closing price at $5.70. Over the last six months, insiders were net buyers of 5,090,000 shares, which represents about 6.29% of the company's 80.97M share float. SMA 50: 30.22%.
( List compiled by James Dennin, a Kapitall writer. Monthly returns sourced from Zacks Investment Research, all other data sourced from Finivz.)