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.
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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 some stocks where insiders have been doing some big buying in per SEC filings.
R.R. Donnelley & Sons
One stock that insiders are doing some notable buying in is R.R. Donnelley & Sons, which operates primarily in the commercial print portion of the printing industry, with related product and service offerings designed to offer customers complete solutions for communicating their messages to target audiences. It looks like insiders see some value here; the stock is off by 22% in 2011.
R.R. Donnelley has a market cap of $2.54 billion and an enterprise value of $6.21 billion. This stock trades at a reasonable valuation, with a trailing price-to-earnings of 22 and a forward price-to-earnings of 6.5. R.R. Donnelley's estimated growth rate for this year is 5.6%, and for next year it's pegged at 10.10%. This is not a cash-rich company; the total cash position on its balance sheet is $363 million, and its total debt is a whopping $4.08 billion. This stock sports an attractive dividend yield of 7.4%, making it one of the highest-yeidling diversified services stocks.
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A director just bought 206,200 shares, or about $3 million worth of stock at $13.99 to $14.68 per share.
From a technical standpoint, this stock is currently trading below both its 50-day and 200-day moving averages, which is bearish. The stock collapsed and gapped down from its July high of $20.30 to a recent low of $12.90 a share. Since that big fall, the stock has started to trade in a sideways trading pattern between $13 and $15.30 a share. A move out of this pattern to the upside or downside is going to set this stock up for its next big trend.
The way I would play this stock is to be a buyer once it trades above its 50-day moving average of $14.82 a share and then above $15.39 on big volume. Look for volume that's tracking in close to or above its three-month average action of 3.6 million shares. A move above those levels should set this stock up to test its 200-day moving average of $17.59 a share. Keep in mind you could also buy this stock on weakness and simply use a mental stop just below $12.90 a share, since shares are trading at around $13.50 right now.
This is a heavily shorted stock, with over 10% of the tradable float currently sold short by the bears. If you see big volume start to move into this stock as it approaches a breakout above the upper end of the sideways trading pattern, then look to get long and play a short squeeze. Remember, the bears have cleaned up on this stock in the past few months, so a short-covering really could easily kick off as they lock in some profits.
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One under-$5 stock whose insiders are loading up on shares of Opko Health, a pharmaceutical and diagnostics company, engages in the discovery, development and commercialization of novel and proprietary technologies primarily in the U.S., Chile and Mexico. This stock hasn't done much in 2011, with shares off by around 6.8%.
Opko Health has a market cap of $1.25 billion and an enterprise value of $1.10 billion. This isn't a profitable company yet, with an operating cash flow of -$16.37 million and levered free cash flow of -$19.92 million, but it is a cash-rich company, with a total cash position on its balance sheet of $93.85 million and total debt of around $14 million. After you back out its debt, Opko has around $79 million in total cash.
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The CEO and chairman of the board just bought 2.5 million shares, or about $8.8 million worth of stock, at $3.60 per share. This purchase was nothing more than a private placement of stock since this equity hasn't traded at $3.60 a share since mid-August. Opko also showed up on an August list of stocks with big insider buying.
From a technical standpoint, this stock is currently trading above both its 50-day and 200-day moving averages, which is bullish. This stock looks very healthy since shares have been making higher lows and mostly higher highs since June. That demonstrates a strong uptrend, and now the stock is nearing a big breakout.
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I would be a buyer of this stock on any weakness and anticipate a breakout above some past overhead resistance at $4.74 to $5.03 a share. Try to get long near the 50-day moving average which is $4.15 a share and simply use a mental stop just below that level. This stock has trended very strong while the market struggled recently, so that increases the odds of a successful breakout soon.
This stock has a reasonable short interest since around 7% of the tradable float currently sold short by the bears. If see this stock breakout soon then look for the shorts to be forced into covering some of their bets, which should help to push this stock significantly higher. SandRidge Energy
Insiders have also been snapping up a decent amount of stock in SandRidge Energy, an independent oil and natural gas company engaged in development and production activities related to the exploitation of its holdings in West Texas, Oklahoma and Kansas. Insiders see some deep value here; this stock has dropped over 20% so far in 2011.
This company has a market cap of $2.19 billion and an enterprise value of $4.9 billion. This stock trades at a fair valuation, with a forward price-to-earnings of 15.25. SandRidge's estimated growth rate for this year is -54%, and for next year it's pegged at 620%. This is far from a cash-rich company, with a total cash position on its balance sheet of $4.61 million and total debt of a whopping $2.91 billion.
A director just bought 100,000 shares, or $592,610 worth of stock, at $5.93 per share. This same director also bought 100,000 shares, or $699,690 worth of stock, at $7 per share back in early August.
From a technical standpoint, this stock is currently trading substantially below both its 50-day and 200-day moving averages, which is bearish. This stock has dropped sharply from its July high of $12.36 to its current price of just over $5.50 a share. That said, the stock recently found some buying support at $4.55 a share and it could be due for a big bounce off of oversold levels. I say oversold because the relative strength index just hit 30 a few trading sessions ago. A reading of 30 marks a stock that's oversold, but that doesn't mean it can't get more oversold.
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If you want to buy this stock, I would only buy off of strength for a trade since the chart looks so horrible. Buy on a high volume move above $5.82 to $6 a share and target a run back toward $6.80 to possibly $7.48 a share, its 50-day. Look for volume that's tracking in close to or above its three-month average action of 16.1 million shares.
This is another stock with a reasonably short interest, since over 9% of their tradable float is currently sold short by the bears. If we can take out some of those near-tem resistance levels, then look for some short-covering to take hold as the bears lock in some profits.
SandRidge shows up on a recent list of 7 Top-Performing Stocks From the No. 1 Small-Cap Fund. Federal Mogul
A well-known Wall Street insider is getting heavily involved in Federal Mogul, a supplier of powertrain and safety technologies that serves the original equipment manufacturers of automotive, light, medium and heavy-duty commercial vehicles, off-road, agricultural, marine, rail, aerospace, power generation and industrial equipment, as well as the aftermarket. With the stock off around 20% so far in 2011, one Wall Street whale is jumping in here hand over fist.
This company has a market cap of $1.57 billion and an enterprise value of $3.31 billion. This stock trades at an extremely cheap valuation, with a trailing price-to-earnings of 7.41 and a forward price-to-earnings of 6.29. Federal Mogul's estimated growth rate for this year is 53.7%, and for next year it's pegged at 20.6%. This is not a cash-rich company; its total cash position is $1.04 billion, and its total debt is $2.89 billion.
Billionaire investor Carl Ichan, who is also a director and chairman of the board of Federal Mogul, just bought 126,900 shares, or $1.9 million worth of stock, at $14.88 to $15.41 per share. Over the last three months, Ichan has now bought over $11 million worth of stock in Federal Mogul t $14.69 to $17.43 per share. Federal Mogul also showed up on last week's lists of stocks with insider buying.
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 hammered since July, dropping from a high of $24 a share to a recent low of $14.11 a share. That said, the stock has started to form a sideways trading pattern during the past two months between $14.11 and $18.04 a share. Market players should now look to buy the upside breakout of this sideways pattern, or avoid the stock violates the lower end of the pattern.
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I would consider buying this stock once it clears its 50-day moving average of $16.26 a share with strong volume. Look for volume that's tracking in close to or above its three-month average action of 207,300 shares. I would then add to any long position once the stock takes out $18.04 with volume. A move above those two key levels should set this stock up for a big spike higher. Apache
One more stock in the oil and gas complex whose insiders are starting to do some buying is Apache, an independent energy company that explores for, develops and produces natural gas, crude oil and natural gas liquids. Insiders are jumping into a stock that has been hammered lower this year, with shares off by around 30%.
This company has a market cap of $31 billion and an enterprise value of $36.21 billion. This stock trades at a very cheap valuation; its trailing price-to-earnings is 8.12, and its forward price-to-earnings is 6.49. Apache's estimated growth rate is 32.5% for this year and 5.5% for next year. This is far from a cash-rich company, with a total cash position on its balance sheet of just $2.88 billion and total debt of $7.85 billion.
A director just bought 4,000 shares, or $341,530 worth of stock, at $85.38 per share.
From a technical standpoint, this stock is currently trading below both its 50-day and 200-day moving averages, which is bearish. The bears have beaten this stock down huge in the past couple of months, since shares of dropped from its July high of $129.26 to a recent low of $73.04 a share. During that timeframe, the stock has been making higher lows and lower lows, which is also bearish. That said, I like that insiders are coming in here and buying a stock that has been so beaten-down.
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If you're looking to buy this stock, I would start to be a buyer off weakness and simply place a stop below that recent low of $73.04. With the stock trading around $80 right now, I would only be a buyer of weakness so your initial purchase isn't a mile away from that stop. If you want to buy this stock off strength, then pull the trigger on any high volume move above $82 a share. Look for a volume move above that price that's tracking in close to or well above its three-month average action of 3.4 million shares.
Apache shows up in T. Boone Pickens' portfolio as of the most recently reported period.
To see more stocks with notable insider buying, including Strategic American Oil, American Superconductor and G-III Apparel Group, check out the Stocks With Big Insider Buying portfolio on Stockpickr.
-- Written by Roberto Pedone in Winderemere, Fla.