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.
Och-Ziff Capital Management Group
One financial player that insiders are in love with here is Och-Ziff Capital Management Group (OZM) , which is a publicly owned hedge fund sponsor. Insiders are buying this stock into notable weakness, since shares have dropped by 10% over the last six months.
Och-Ziff Capital Management Group has a market cap of $1.5 billion and an enterprise value of $712 million. This stock trades at a cheap valuation, with a forward price-to-earnings of 6.73. Its estimated growth rate for this year is -146.9%, and for next year it's pegged at 308.7%. This is not a cash-rich company, since the total cash position on its balance sheet is $430.47 million and its total debt is $561.76 million.
A beneficial owner just bought 653,900 shares, or about $2.12 million worth of stock, at $3.25 per share. That same beneficial owner also just bought 1,027,020 shares, or about $3.31 million worth of stock, at $3.23 per share.
From a technical perspective, Och-Ziff Capital Management Group is currently trending above its 50-day moving average and below its 200-day moving average, which is neutral trendwise. This stock recently spiked notably higher right off its 20-day moving average of $3.13 a share with strong upside volume flows. That move to the upside is now starting to push shares of Och-Ziff Capital Management Group within range of triggering a near-term breakout trade above some key overhead resistance levels.
If you're bullish on Och-Ziff Capital Management Group then I would look for long-biased trades as long as this stock is trending above its 50-day moving average of $3.09 a share or above more near-term support levels at $2.90 to $2.80 a share and then once it breaks out above some near-term overhead resistance levels at $3.42 to its 200-day moving average of $3.61 a share and then above more resistance at $3.62 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 volume of 795,176 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 $4.10 to $4.30, or even $4.60 to $4.80 a share.