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. Related: Adding Alpha With Leveraged ETFs
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, 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 five stocks where insiders have been doing some big buying in per SEC filings.
Golden Star Resources
One name in the gold and silver sector where insiders have been doing some notable buying in is Golden Star Resources. This is an international gold mining and exploration company producing gold in Ghana, West Africa. It conducts gold exploration in other countries in West Africa and in South America. It looks like insiders are finding some value here since this stock is down a whopping 49% so far in 2011.
This company has a market cap of $605 million and an enterprise value of $607 million. This stock trades at a premium trailing price-to-earnings of 80 and a more reasonable forward price-to-earnings of 11. Golden Star is estimated growth rate is 150% for the next quarter and 166% for this year. This is a cash-rich company since they have $137 million in total cash and $139 million in total debt.
A director just bought 100,000 shares, or $232,000 worth of stock, at $2.32 per share.
From a technical standpoint, this stock is currently trading below both its 50-day and 200-day moving averages, which is bearish. This stock has been stuck in a nasty downtrend for the past year where shares have been making lower highs and lower lows, which is also bearish. The stock recently printed a brand new 52-week low of $1.78 a share, but since then it has rebounded a bit towards its current price of $2.26.
One could be a buyer on any weakness with a stop just below some near-term support at $2.06 a share. If $2.06 holds, then you could add to any long position once shares of GSS trade above its 50-day moving average of $2.44 on heavy volume. Look for volume that's close to or well above its three-month average action of 3.5 million shares. Plains All American Pipeline
One name in the oil and gas pipeline sector where insiders have snapped up a large amount of stock in is Plains All American Pipeline. This company engages in the transportation, storage, terminalling, and marketing of crude oil, refined products, and liquefied petroleum gas and other natural gas-related petroleum products in the U.S. and Canada. This stock hasn't done much so far with year with shares off by around 6%.
Plains All American Pipeline has a market cap of $8.8 billion and an enterprise value of $14.3 billion. This stock trades at a reasonable valuation, since its trailing price-to-earnings is 19 and its forward price-to-earnings is 15. Their estimated growth rate for the current quarter is 28% and for this year its 25.7%. This is far from a cash-rich company, since their total cash position on their balance sheet is just $23 million and their total debt is $5.6 billion.
A director just bought 200,354 shares, or $11,880,992 worth of stock, at $59.30 per share.
From a technical standpoint, this stock is trading below both its 50-day and 200-day moving averages, which is bearish. The stock also recently formed a triple top chart pattern at around $64 a share. That $64 level has marked an area of tough resistance where this stock has failed at repeatedly during the past year. That said, the stock also just found some buying support at around $56 a share, which is an area where buyers have stepped in many times during the past year and a half.
If you want to buy this stock, then I would get long on any weakness near $56 a share and look to trade the channeling pattern for PAA where it runs back up towards $64 a share. I would stop out of any long positions a few percentage points below $56 a share in case the bears have gained control. I would add to any long positions above the 50-day moving average of $61.71 a share and then add heavily if it ever breaks above $64 on huge volume. Allscripts Healthcare
One name in the healthcare software space where key insiders have been doing some notable buying in is Allscripts Healthcare. This is a provider is a provider of clinical software, services, information and connectivity solutions that are used by physicians and other healthcare providers to improve the quality of healthcare. Insiders are finding some decent value here since shares of MDRX are down over 13% so far this year.
This company has a market cap of $3.1 billion and an enterprise value of $3.35 billion. This stock is trading at a reasonable valuation with a forward price-to-earnings of 15.4 and an estimated growth rate for next year at 18.9%. This is far from a cash-rich company since they have over $424 million in total debt on their balance sheet and just $115 million in total cash.
The CEO and director just bought 13,500 shares, or $200,340 worth of stock, at $14.84 per share.
From a technical standpoint, this stock is currently trading below both its 50-day and 200-day moving averages, which is bearish. Shares of MDRX recently hit a new 52-week low at $13.85 a share, but it has since then bounced back up above $16. The move above $16 also triggered a near-term breakout for the stock.
If you want to buy this stock, I would get long above some prior resistance at $16.62, and then add heavily once you see it trade above its 50-day moving average of $17.88 on huge volume. Look for a high-volume move that registers close to or well above its three-month average action of 2.7 million shares. I would target a run towards the 200-day moving average of $19.59 a share. Northrop Grumman
One name in the aerospace and defense complex where insiders have been very active in is Northrop Grumman. This is an integrated enterprise consisting of businesses that cover the entire security spectrum, from undersea to outer space and into cyberspace. Insiders are buying up some shares of NOC into weakness since the stock is down over 19% so far in 2011.
This company has a market cap of $14 billion and an enterprise value of $15 billion. This stock trades at a very cheap valuation, since its trailing price-to-earnings is 8 and its forward price-to-earnings is 7. This is not a cash-rich company since they have just over $2.8 billion in cash and over $3.9 billion in total debt on their balance sheet.
The chairman of the board and CEO just bought 5,000 shares, or $248,750 worth of stock, at $49.75 per share.
From a technical standpoint, this stock collapsed recently from a high in July of $70.61 a share to its recent low of $49.20 a share. Shares of NOC are now trading below both its 50-day and 200-day moving averages, which is bearish. That said, some large upside volume has started to move into this stock after the selling volume expanded dramatically on that big collapse from $70.
I think it's very possible that NOC has just put in a double bottom at around $49 a share, which could be offering traders a great buying entry point.
If you're looking to buy this stock, I get long either on any weakness towards $49.20 a share and simply use a mental stop just a few percentage points below that price. Or, I would buy this stock once it trades above some significant near-term overhead resistance at around $54.12 a share. If the recent big buying volume has marked a bottom in NOC, then a move over $54.12 could signal that a run back towards its 200-day moving average of $61.16 a share is possibly in the cards.
The bottom line here is that I like this CEO's purchase because he's buying the stock off of a very oversold level. The current relative strength index (RSI) reading for NOC is 36 and it's been under 30 for weeks now. A reading below 30 marks an oversold level where many stocks bounce from. Since the big upside volume is coming in here, it makes me lean more towards a bottom, then towards more selling pressure in the future for NOC. Assured Guaranty
One final name in the insurance sector where insiders have snapped up a ton of stock in is Assured Guaranty. This is a Bermuda-based holding company that provides, through its subsidiaries, credit protection products to the U.S. and international public finance, infrastructure and structured finance markets. This is another situation where insiders are finding some deep value since the stock is off by over 30% so far in 2011.
Assured Guaranty has a market cap of $2.2 billion and an enterprise value of $2 billion. The stock trades at a reasonable valuation, since its trailing price-to-earnings is 25 and its forward price-to-earnings is 4. Their estimated growth rate is for 4.9% next quarter and 7.2% this year. The company has just a bit more cash on their balance sheet, since they have $1.23 billion in cash and $1.05 billion in total debt.
Billionaire investor and director Wilbur Ross just bought 376,000 shares, or $4,353,200 worth of stock, between $11.53 and $11.60 per share. Ross also bought over $6 million worth of AGO stock earlier this month.
From a technical standpoint, this stock recently collapsed from its July high of $16.99 a share to a recent low of $9.71 a share. This stock is now trading below both its 50-day and 200-day moving averages, which is bearish. That said, the stock looks like it might have stopped its downtrend since shares bounced from $9.71 to over $12 a share. The stock is currently trading at around $11.85 a share and some up days in the past few weeks have seen some solid upside volume.
If you're looking to buy this stock, I would add to this name on any weakness as long as it holds above some significant near-term support at around $11.12 a share. If that level holds, then the current consolidation pattern could mean the stock is basing and resting before another run higher. I would add to any long positions once it trades above some near-term overhead resistance at $12.75 a share on solid volume. Look for volume that's close to or well above its three-month average action of 2.2 million shares.
I would target a run back towards its 50-day moving average of $14.24 a share or possibly higher if $12.75 is taken out to the upside with big volume. Following a smart billionaire like Ross looks appealing here if AGO can hold above $11.12 a share.
To see more stocks with notable insider buying like Central European Media, State Street and Energy Transfer, check out the Stocks With Big Insider Buying portfolio on Stockpickr.