WINDERMERE, Fla. (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 only 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, it could end up going nowhere.
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At the end of the day, its large 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 it's 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. Here's a look at some stocks where insiders have been doing some big buying in per SEC filings.
One stock that's seen some big insider buying recently is Nanosphere, which develops, manufactures and markets an advanced molecular diagnostics platform, the Verigene System, that enables sensitive genomic and protein testing on a single platform. Insiders are finding some deep value here since the stock is down over 58% so far in 2011.
This company has a current market cap of $50 million and an enterprise value of $21 million. This is a cash-rich company, with $30 million in cash on its balance sheet and zero debt. The U.S. Food and Drug Administration said on June 21 that it would not approve Nanosphere's Plavix Metabolism diagnostic test until the company submits additional data. Following that news, the stock plunged from around $2.30 to its current price of $1.80 a share.
A director just bought 285,000 shares, or $459,201 worth of stock, at $1.57 to $1.64 per share. This same director also bought 2,700,000 shares, or $5.94 million worth of stock, at $2.20 back on May 10.
From a technical standpoint, this stock has been crushed so far this year, falling from a high of $5.54 to its current level of $1.80 a share. This stock is now trading below both its 50-day and 200-day moving averages, which is bearish. That said, NSPH recently hit a short-term bottom at $1.46, and upside volume has been expanding dramatically. One big up day last week saw volume of 6.4 million, which is well above the three-month average volume of 489,000 shares.
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If you're looking to buy this stock, I would add this name on any weakness with a stop just below $1.46 a share. I would only add to a long position if you see NSPH trade back above its 50-day moving average of $2.37 a share on strong volume.
It's worth noting that NSPH has a reasonable short interest of 7.7% of the float. The bears have increased their bets from the last reporting period by 5.4%, or by around 109,000 shares. Pharmacyclics
One name in the biotechnology space that insiders have been loading up on shares of is Pharmacyclics, a clinical-stage biopharmaceutical company focused on developing and commercializing small-molecule drugs for the treatment of cancer and immune mediated diseases. Insiders seem to have no problem paying up to own shares here since the stock is up over 70% so far in 2011. Whenever I see insiders buying a stock despite the fact that it has already advanced big, I take notice.
Pharmacyclics has a market cap of $629 million and an enterprise value of $561 million. This is a cash-rich company, with over $54 million in cash on their balance sheet and zero debt.
The CEO just bought 678,000 shares, or about $6 millionworth of stock, at $8.85 per share. This same CEO also bought over $6 million worth of stock in PCYC back in June of 2010. The most recent purchase by this CEO was part of a private placement that helped raise over $57.1 million for the company.
From a technical standpoint, this stock is very close to a major breakout if it can manage to take out $10.75 a share on the upside. A move above this level would mark a brand new 52-week high and would likely bring in some momentum traders. It's also worth noting that some huge upside volume has been flowing into this stock for the entire month of June.
If you like this stock, I would trade the breakout if you see big volume flow into this name once it punches above $10.75. Look for volume that's well above the three-month average action of 572,000 shares. Use a mental stop that's a few percent below the breakout level just in case it fails to hold.
This is a heavily shorted stock in which the bears are losing the battle. The current short interest as a percentage of the float is 9.1%. The short-sellers have also been increasing their bets from the last reporting period by 6.2%, or by about 233,000 shares. If PCYC breaks out soon, look for this high short interest to fuel the stock significantly higher.
Pharmacyclics shows up on a recent list of 17 Breakout Stocks to Watch. GTx
Another biotechnology stock whose insiders are loading up on shares is GTx, a biopharmaceutical company dedicated to the discovery, development and commercialization of small molecules that targets hormone pathways to treat cancer, osteoporosis and bone loss, muscle loss and other serious medical conditions. This stock is off to a red-hot start in 2011, with shares up over 79%. Clearly, insiders are still finding value in GTXI since they're paying up to own shares.
This company has a market cap of $246 million and an enterprise value of $194 million. GTx is a cash-rich company, with over $49 million in cash on their balance sheet and zero debt. The company recently announced a public offering of 10 million shares of its common stock at an offering price of $4.75 per share. GTx plans to use the new capital for clinical development, research and development and general corporate purposes.
GTx's chairman just bought 975,000 shares or $4,631,250 worth of stock at $4.75 per share. This same chairman also made some large direct purchases of stock back in late 2010 at $2.80 per share.
From a technical standpoint, this stock sold off hard during the past couple of weeks from its 52-week high of $6.86 a share to its current price of around $4.77. The stock is now trading below its 50-day moving average of $5.35 and above its 200-day moving average of $3.51 a share.
If you're interested in buying this stock, I would buy on any weakness and use a mental stop at around $4.26 to $4, depending on your risk tolerance. A move below $4 would make me avoid this stock for now from the long side. I would add to any purchases once GTXI trades above its 50-day moving average on heavy volume.
It's worth nothing that this is a heavily shorted stock. The current short interest as a percentage of the float for GTXI is a rather large 22.4%. The bears have also been increasing their bets from the last reporting period by around 7.9%, or by 237,500 shares.
GTXI shows up on a recent list of 10 Cheap Biotech Stocks That Could Soar. Vantage Drilling
If you're looking for an energy company whose insiders are doing some buying, then take a look at Vantage Drilling, a drilling company focused on operating a fleet of drilling units. The cmpany's primary business is to contract drilling units, related equipment and work crews primarily on a dayrate basis to drill oil and natural gas wells for its customers. So far this year shares are down over 9%.
Vantage Drilling has a market cap of $533 million and an enterprise value of $1.6 billion. This stock isn't cheap, trading at a forward price-to-earnings of 30. This company isn't cash-rich, either, with a whopping $1.11 billion in debt on its balance sheet and just $51.71 million in total cash.
A beneficial owner just bought 979,300 shares, or $1.7 million worth of stock, at $1.71 to $1.78 per share.
From a technical standpoint, this stock has dropped noticeably from its yearly high of $2.26 a share to its current price of $1.84. Shares of VTG are now just starting to trade back above both its 200-day and 50-day moving averages. If the stock can manage to close above both of those levels, then we could be entering into a short-term bullish trend change. It's also worth pointing out that VTG is still in a longer-term bullish trend since a one-year chart shows a pattern of higher lows.
One way to play VTG is to take a long position on any weakness as long as the stock is trading above both of those key moving averages I mentioned above. One could then add to any long position once VTG breaks out above some near-term resistance at $1.88 a share. Add again aggressively if you see VTG trade above some major past resistance at $2.50 a share.
It's worth noting that Vantage Drilling has a reasonable short interest. The current short interest as a percentage of the float for VTG stands at 5.4%. The bears have also been increasing their bets from the last reporting period by a rather large 25.6%, or by about 1.8 million shares.
One final stock that has seen some large insider buying is Aegerion Pharmaceuticals, a development stage biopharmaceutical company that engages in the development and commercialization of novel therapeutics to treat severe lipid disorders. This stock is off to a decent start in 2011, with shares up over 12.2%.
This company has a market cap of $280 million and an enterprise value of $242 million. This stock is far from expensive trading at a forward price-to-earnings of 9.9. This is another cash-rich company with $46 million in total cash and just $10 million in total debt, for a net cash amount of $36 million.
Aegerion just recently did a public offering of 4.3 million shares that was priced at $15.50 per share. The company said it plans to use the funds to complete studies on a drug called lomitapide which is targeted to treat a disease that causes very high levels of bad cholesterol.
The CEO recently bought 64,516 shares, or $999,998 worth of stock, at $15.50 per share. This is the fourth time the CEO has purchased shares this year, but this most recent buy was by far the largest.
From a technical standpoint, this stock has fallen hard since late April dropping from a high of $25.92 to its current level of $16 a share. The stock recently hit a short-term low of $14.62, which is a previous support zonefrom back in late March.
If you want to buy this stock, look to add it on weakness and use $14.62 as your mental stop. A move below that level would have me bailing on this name since it would mean the downtrend is not over. If that level does indeed hold, then add to your position once it trades above the 50-day moving average of $17.88, and then add again above $18 to $18.28 a share.
To see more stocks with notable insider buying, check out the Stocks With Big Insider Buying portfolio on Stockpickr.
-- Written by Roberto Pedone in Winderemere, Fla.