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 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 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.