5 Stocks Insiders Love Right Now

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.

Arconic

One basic materials player that insiders are jumping into here is Arconic (ARNC) , which develops and manufactures engineered products for aerospace, industrial gas turbine, commercial transportation, and oil and gas markets. Insiders are buying this stock into major weakness, since shares have fallen by 28.9% over the last six months.

Arconic is a holding in Jim Cramer's Action Alerts PLUS Charitable Trust Portfolio. Want to be alerted before Cramer buys or sells ARNC? Learn more now.

Arconic has a market cap of $9.9 billion. This stock trades at a fair valuation, with a forward price-to-earnings of 21.7. Its estimated growth rate for this year is -32.1%, and for next year it's pegged at -8.80%.

A beneficial owner just bought 544,000 shares, or about $11.75 million worth of stock, at $21.20 to $21.74 per share. That same beneficial owner also just bought 256,000 shares, or about $5.53 million worth of stock, at $21.20 to $22.21 per share.

From a technical perspective, Arconic is currently trending above both its 50-day and 200-day moving averages, which is bullish. This stock has been uptrending over the last month, with shares moving higher off its low of $18.47 a share to its recent high of $22.80 a share. During that uptrend, shares of Arconic have been consistently making higher lows and higher highs, which is bullish technical price action.

If you're bullish on Arconic then I would look for long-biased trades as long as this stock is trending above its 20-day moving average of $20.67 a share or above its 50-day moving average of $20.38 a share and then once it breaks out above some near-term overhead resistance levels at $23.50 to $24 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 6.03 million shares. If that breakout triggers soon, then this stock will set up to re-test or possibly take out its 52-week high of $25.86 a share. Any high-volume move above $25.86 will then give this stock a chance to make a run at $28 to $30 a share.

Alliance Data Systems

Another business services player that insiders are loading up on here is Alliance Data Systems (ADS) , which provides marketing and loyalty solutions in the U.S. and internationally. Insiders are buying this stock into modest strength, since shares have risen by 10.1% over the last three months.

Alliance Data Systems has a market cap of $12.7 billion and an enterprise value of $30.9 billion. This stock trades at a reasonable valuation, with a trailing price-to-earnings of 23.2 and a forward price-to-earnings of 11.7. Its estimated growth rate for this year is 12.4%, and for next year it's pegged at 10.5%. This is not a cash-rich company, since the total cash position on its balance sheet is $1.50 billion and its total debt is $19.34 billion. This stock currently sports a dividend yield of 0.91%.

A beneficial owner just bought 210,100 shares, or about $47.97 million worth of stock, at $225.89 per share.

From a technical perspective, Alliance Data Systems is currently trending above its 200-day moving average and below its 50-day moving average, which is neutral trendwise. This stock is rebounding notably higher here right off its 200-day moving average of $214.51 a share with strong upside volume flows. This high-volume rebound is now quickly pushing shares of Alliance Data Systems within range of triggering a near-term breakout trade above some key overhead resistance levels.

If you're bullish on Alliance Data Systems then I would look for long-biased trades as long as this stock is trending above its 200-day moving average of $214.51 a share and then once it breaks out above both its 50-day moving average of $229.54 a share to its 20-day moving average of $231.87 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 action of 566,908 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 $238.66 to its 52-week high of $241.69 a share.

Medley Capital

One financial player that insiders are active in here is Medley Capital (MCC) , which is a non-diversified closed-end management investment company. Insiders are buying this stock into modest strength, since shares have moved up by 3.8% over the last six months.

Medley Capital has a market cap of $415 million. This stock trades at a reasonable valuation, with a forward price-to-earnings of 8.3. Its estimated growth rate for this year is -15.5%, and for next year it's pegged at 11%. This stock currently sports a dividend yield of 11.5%.

The CEO just bought 66,585 shares, or about $499,000 worth of stock, at $7.49 to $7.50 per share.

From a technical perspective, Medley Capital is currently trending above both its 50-day and 200-day moving averages, which is bullish. This stock recently formed a double bottom chart pattern, after shares found some buying interest at $7.40 to $7.50 a share over the last month. Following that potential bottom, shares of Medley Capital have now started to spike a bit higher, and it's beginning to trend within range of triggering a big breakout trade above some key overhead resistance levels.

If you're in the bull camp on Medley Capital, then I would look for long-biased trades as long as this stock is trending above those recent double bottom support levels, or above its 200-day moving average of $7.01 a share and then once it breaks out above some key overhead resistance levels at $7.72 to $8.03 a share and then above its 52-week high of $8.06 a share with volume that hits near or above its three-month average action of 405,755 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 $8.66 to $9, or even $9.45 to $10 a share.

Legg Mason

One financial player that insiders are active in here is Legg Mason (LM) , which is a publicly owned asset management holding company. Insiders are buying this stock into modest strength, since shares have trended up 3.2% over the last three months.

Legg Mason has a market cap of $3.2 billion and an enterprise value of $4.5 billion. This stock trades at a reasonable valuation, with a price-to-sales of 1.23 and a price-to-book of 0.83. This is not a cash-rich company, since the total cash position on its balance sheet is $1.09 billion and its total debt is $2.22 billion. This stock currently sports a dividend yield of 2.65%.

A beneficial owner just bought 30,405 shares, or about $960,000 worth of stock, at $31.58 per share.

From a technical perspective, Legg Mason is currently trending above both its 50-day and 200-day moving averages, which is bullish. This stock has been uptrending over the last month and change, with shares moving higher off its low of $29.71 a share to its recent high of $33.74 a share. During that uptrend, shares of Legg Mason have been making mostly higher lows and higher highs, which is bullish technical price action. That uptrend is now quickly pushing shares of Legg Mason within range of triggering a big breakout trade above some key overhead resistance levels.

If you're bullish on Legg Mason, then I would look for long-biased trades as long as this stock is trending above its 50-day moving average of $31.57 a share or above more near-term support at $30.50 a share and then once it breaks out above some key overhead resistance levels at $33.51 to $34.63 a share and then above $35.13 to its 52-week high of $35.83 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 2.03 million shares. If that breakout develops soon, then this stock will set up to re-test or possibly take out its next major overhead resistance levels at $39 to $40, or even $43 to $45 a share.

IHS Markit

My final stock with some decent insider buying is business services player IHS Markit (INFO) , which provides critical information, analytics, and expertise to forge solutions for various industries and markets that drive economies worldwide. Insiders are buying this stock into solid strength, since shares have trended up 13.7% over the last six months.

IHS Markit has a market cap of $16.4 billion and an enterprise value of $19.8 billion. This stock trades at a premium valuation, with a trailing price-to-earnings of 82.7 and a forward price-to-earnings of 16.5. Its estimated growth rate for this year is 14.4%, and for next year it's pegged at 16.5%. This is not a cash-rich company, since the total cash position on its balance sheet is $138.90 million and its total debt is $3.38 billion.

A beneficial owner just bought 10,000 shares, or about $386,000 worth of stock, at $38.62 per share.

From a technical perspective, IHS Markit is currently trending above both its 50-day and 200-day moving averages, which is bullish. This stock has been uptrending strong over the last two months, with shares moving higher off its low of $34.20 a share to its intraday high on Thursday of $39.98 a share. During that uptrend, shares of IHS Markit have been consistently making higher lows and higher highs, which is bullish technical price action.

If you're bullish on IHS Markit, then I would look for long-biased trades as long as this stock is trending above its 20-day moving average of $37.28 a share or above its 200-day moving average of $34.53 a share and then once it breaks out above its all-time high of $39.98 a share with volume that hits near or above its three-month average action of 2.71 million shares. If that breakout materializes soon, then this stock will set up to enter new all-time-high territory, which is bullish technical price action. Some possible upside targets off that breakout are $45 to $50, or even $55 a share.

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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