DELAFIELD, Wis. (Stockpickr) -- Corporate insiders sell their own companies' stock for a number of reasons.
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 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, 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, it's institutional money managers running big mutual funds and hedge funds 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 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.
One stock that insiders are jumping into here is Sears Holdings (SHLD), which operates as a retailer in the U.S. Insiders are buying this stock into major strength, since shares have ripped to the upside by 23.9% over the last three months.
Sears Holdings has a market cap of $4.4 billion and an enterprise value of $7.9 billion. This stock trades at a reasonable valuation, with a price-to-sales of 0.14. Its estimated growth rate for this year is -12.3%, and for next year it's pegged at -5.4%. This is not a cash-rich company, since the total cash position on its balance sheet is $250 million and its total debt is $3.80 billion.
A beneficial owner just bought 158,800 shares, or about $6.28 million worth of stock, at $39.07 to $40.36 per share.
From a technical perspective, SHLD is currently trending above both its 50-day and 200-day moving averages, which is bullish. This stock has been uptrending a bit over the for the last few weeks, with shares moving higher from its low of $38.78 to its intraday high on Tuesday of $42.14 a share. During that uptrend, shares of SHLD have been consistently making higher lows and higher highs, which is bullish technical price action. That move has now pushed shares of SHLD within range of triggering a near-term breakout trade.
If you're bullish on SHLD, then I would look for long-biased trades as long as this stock is trending above that recent low of $38.78 a share and then once it breaks out above some near-term overhead resistance levels $44.44 to $46.23 a share with high volume. Look for a sustained move or close above those levels with volume that hits near or above its three-month average volume of 637,757 shares. If that breakout begins soon, then SHLD will set up to re-test or possibly take out its next major overhead resistance level at its 52-week high of $48.25 to $50 a share, or even $54.50 a share.