Editors' pick: Originally published Jan. 6.

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.

Enterprise Products Partners

One stock that insiders are loading up on here is Enterprise Products Partners  (EPD) , which provides midstream energy services to producers and consumers of natural gas, natural gas liquids, crude oil, petrochemicals and refined products in the U.S. and internationally. Insiders are buying this stock into notable weakness, since shares have dropped by 11.8% over the last six months.

Enterprise Products Partners has a market cap of $52.5 billion and an enterprise value of $75.3 billion. This stock trades at a fair valuation, with a trailing price-to-earnings of 20.8 and a forward price-to-earnings of 18. Its estimated growth rate for this year is -12.3%, and for next year it's pegged at 13.3%. This is not a cash-rich company, since the total cash position on its balance sheet is $87.90 million and its total debt is $22.46 billion. This stock currently sports a dividend yield of 6%.

A director just bought 3,830,256 shares, or about $100 million worth of stock, at $26.11 per share.

From a technical perspective, Enterprise Products Partners is currently trending just above its 50-day moving average and below its 200-day moving average, which is neutral trendwise. This stock has been uptrending over the last few weeks, with shares moving higher from its low of $20.76 to its recent high of $26.70 a share. During that uptrend, shares of Enterprise Products Partners have been making mostly higher lows and higher highs, which is bullish technical price action.

If you're bullish on Enterprise Products Partners, then I would look for long-biased trades as long as this stock is trending above its 20-day moving average of $24.14 share and then once it breaks out above some near-term overhead resistance levels at $26.87 to $27 a share with high volume. Look for a sustained move or close above those levels with volume that registers near or above its three-month average action of 6.25 million shares. If that breakout hits soon, then this stock will set up to re-test or possibly take out its next major overhead resistance levels at its 200-day moving average of $28.34 to $28.65, or even $29.50 to $30.30 a share.

Sequenom

Another stock that insiders are active in here is Sequenom  (SQNM) , which develops and commercializes molecular diagnostics testing services for the women's health and oncology markets in the U.S. and internationally. Insiders are buying this stock into massive weakness, since shares have plunged by 48.8% over the last six months.

Sequenom has a market cap of $179 million and an enterprise value of $244 million. This stock trades at a fair valuation, with a trailing price-to-earnings of 12.5. Its estimated growth rate for the next quarter is -33.3%, and for next year it's pegged at 13.3%. This is not a cash-rich company, since the total cash position on its balance sheet is $80.40 million and its total debt is $134.75 million.

A beneficial owner just bought 665,435 shares, or about $1.07 million worth of stock, at $1.59 per share.

From a technical perspective, Sequenom is currently trending below both its 50-day and 200-day moving averages, which is bearish. This stock has been uptrending over the last few weeks, with shares moving higher from its low of $1.10 to its recent high of $1.74 a share. During that uptrend, shares of Sequenom have been making mostly higher lows and higher highs, which is bullish technical price action. That uptrend has now pushed this stock within range of triggering a near-term breakout trade above some key overhead resistance levels.

If you're in the bull camp on Sequenom, then I would look for long-biased trades as long as this stock is trending above some near-term support at $1.40 a share and then once it breaks out above some near-term overhead resistance levels at $1.66 to $1.74 a share and then above more resistance at $1.82 a share with volume that registers near or above its three-month average action of 1.01 million shares. If that breakout fires off soon, then this stock will set up to re-test or possibly take out its next major overhead resistance levels at $2.10 to $2.17, or even $2.50 a share.

Chimerix

One biopharmaceutical stock that insiders are jumping into here is Chimerix  (CMRX) , which discovers, develops and commercializes oral antivirals to address unmet medical needs in the U.S. Insiders are buying this stock into huge weakness, since shares have plunged by 79.8% over the last six months.

Chimerix has a market cap of $429 million and an enterprise value of $177 million. This stock trades at a fair valuation, with a price-to-sales of 45.2 and a price-to-book of 1.08. Its estimated growth rate for this year is -41.1%, and for next year it's pegged at 7.1%. This is a cash-rich company, since the total cash position on its balance sheet is $220.80 million and its total debt is $375,000.

A director just bought 125,000 shares, or about $886,000 worth of stock, at $7.09 per share.

From a technical perspective, Chimerix is currently trending below both its 50-day and 200-day moving averages, which is bearish. This stock recently gapped-down sharply from over $36 a share to its new all-time low of $6.43 a share with heavy downside volume flows. Following that move, shares of Chimerix have started to rebound off that $6.43 low with a number of strong upside volume days. That rebound is now quickly pushing this stock within range of triggering a near-term breakout trade above some key overhead resistance.

If you're bullish on Chimerix, then I would look for long-biased trades as long as this stock is trending above some near-term support at $8.52 a share and then once it breaks out above some near-term overhead resistance at $9.75 a share with high volume. Look for a sustained move or close above that level with volume that hits near or above its three-month average action of 1.94 million shares. If that breakout develops soon, then this stock will set up to re-fill some of its recent gap-down-day zone that started near $36 a share.

Intevac

One technology stock that insiders are in love with here is Intevac  (IVAC) , which provides process manufacturing equipment solutions to the hard disk drive industry, as well as thin-film processing systems to the photovoltaic and adjacent thin-film deposition applications. Insiders are buying this stock into notable weakness, since shares have fallen by 16.7% over the last six months.

Intevac has a market cap of $107 million and an enterprise value of $56 million. This stock trades at a reasonable valuation, with a price-to-sales of 1.33 and a price-to-book of 1.21. Its estimated growth rate for this year is 32.9%, and for next year it's pegged at 19.6%. This is a cash-rich company, since the total cash position on its balance sheet is $47.06 million and its total debt is zero.

A beneficial owner just bought 356,800 shares, or about $1.68 million worth of stock, at $4.73 per share.

From a technical perspective, Intevac is currently trending below both its 50-day and 200-day moving averages, which is bearish. This stock has been uptrending a bit over the last few weeks, with shares moving higher off its low of $4.46 to its intraday high on Tuesday of $5.05 a share. During that uptrend, shares of Intevac have been making mostly higher lows and higher highs, which is bullish technical price action. That move has now pushed this stock within range of triggering a near-term breakout trade above some key overhead resistance levels.

If you're bullish on Intevac, then I would look for long-biased trades as long as this stock is trending above some near-term support levels at $4.62 or above $4.46 a share and then once it breaks out above some near-term overhead resistance levels at $5.18 to its 200-day moving average of $5.21 a share with high volume. Look for a sustained move or close above those levels with volume that registers near or above its three-month average action of 24,341 shares. If that breakout materializes soon, then this stock will set up to re-test or possibly take out its next major overhead resistance levels at $5.40 to $5.46, or even $6 to $6.15 a share.

Layne Christensen

One final stock with some decent insider buying is heavy construction player Layne Christensen  (LAYN) , which provides water management, construction, and drilling services in North America and internationally. Insiders are buying this stock into large weakness, since shares have dropped sharply by 37.3% over the last six months.

Layne Christensen has a market cap of $105 million and an enterprise value of $197 million. This stock trades at a cheap valuation, with a price-to-sales of 0.13 and a price-to-book of 0.72. Its estimated growth rate for this year is 30.1%, and for next year it's pegged at 79.3%. This is not a cash-rich company, since the total cash position on its balance sheet is $69.69 million and its total debt is $162.71 million.

A director just bought 134,147 shares, or about $670,000 worth of stock at $4.95 to $5.11 per share. From a technical perspective, Layne Christensen is currently trending below both its 50-day and 200-day moving averages, which is bearish. This stock has been uptrending over the last few weeks, with shares ripping higher off its 52-week low of $3.75 a share to its intraday high on Tuesday of $5.39 a share. During that uptrend, shares of Layne Christensen have been consistently making higher lows and higher highs, which is bullish technical price action. That move has now pushed this stock within range of triggering a near-term breakout trade.

If you're bullish on Layne Christensen, then I would look for long-biased trades as long as this stock is trending above its 20-day moving average of $4.77 a share and then once it breaks out above its 50-day moving average of $5.65 a share with high volume. Look for a sustained move or close above that level with volume that hits near or above its three-month average volume of 170,156 shares. If that breakout gets started soon, then this stock will set up to re-test or possibly take out its next major overhead resistance levels at $6.64 to its 200-day moving average of $6.95, or even $7.20 to $7.30 a share.

 

Disclosure: This article is commentary by an independent contributor. At the time of publication, the author held no positions in the stocks mentioned.

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