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 auto manufacturer that insiders are active in here is General Motors (GM), which designs, builds and sells cars, crossovers, trucks and automobile parts worldwide. Insiders are buying this stock into notable strength, since shares have spiked higher by 9.2% over the last six months.
General Motors has a market cap of $56.4 billion and an enterprise value of $82.7 billion. This stock trades at a cheap valuation, with a trailing price-to-earnings of 16.3 and a forward price-to-earnings of 6.8. Its estimated growth rate for this year is 47.2%, and for next year it's pegged at 13.6%. This is not a cash-rich company, since the total cash position on its balance sheet is $22.08 billion and its total debt is $48.26 billion. This stock currently sports a dividend yield of 4.1%.
From a technical perspective, GM is currently trending above its 200-day moving averages and below its 50-day moving average, which is neutral trendwise. This stock has been downtrending over the last two months, with shares moving lower from its high of $38.99 to its recent low of $34.51 a share. During that downtrend, shares of GM have been consistently making lower highs and lower lows, which is bearish technical price action. That said, shares of GM have now started to bounce off that $34.51 low and it's beginning to trend within range of triggering a near-term breakout trade.
If you're bullish on GM, then I would look for long-biased trades as long as this stock is trending above that recent low of $34.51 or above its 200-day at $33.97 and then once it breaks out above some near-term overhead resistance levels $35.59 to $36 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 14.54 million shares. If that breakout begins soon, then GM will set up to re-test or possibly take out its next major overhead resistance levels at its 50-day moving average of $36.54 to $37.45, or even $38 to $39 a share.