Stock Quotes in this Article: CAR, DRI, GERN, MHR, NVDA

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.

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    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, 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 several stocks that insiders have been doing some big buying in per SEC filings.

     

    Geron

    A stock in the biotechnology and drug complex whose insiders have done some notable buying recently is Geron (GERN), which develops biopharmaceuticals for the treatment of cancer and chronic degenerative diseases, including spinal cord injury, heart failure and diabetes. It looks like insiders are finding some deep value here; this stock is off by over 55% so far in 2011.

    Geron has a market cap of $300 million and an enterprise value of $155 million. This company is not profitable yet, with an operating cash flow of -$51.87 million and levered free cash flow of -$45.42 million. It is a cash-rich company, boasting a total cash position on its balance sheet of $151.77 million and total debt of zero.

    A director just bought 50,000 shares, or $101,500 worth of stock, at $2.03 per share.

    >>10 Most-Shorted Stocks in Biotech

    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 hammered this stock lower in the past three months, with shares dropping from its July high of $4.39 a share to a recent low of $1.87 a share. That said, since hitting that low, the stock has started to rebound back to its current price of $2.30 on heavy volume.

    If you’re looking to buy this stock, I would get long once it crosses back above its 50-day moving average of $2.49 with strong volume. Look for volume that’s tracking in close to or above its three-month average action of 1.6 million shares. If we get that move, I would then add aggressively once this stock breaks out above $2.80 and $3.13 a share. A move above those levels should set this stock up for a run back towards $4 a share or possibly even higher. Use a mental stop just below the 50-day if we do cross back above if you happen to get long.

    >>11 Biotech Stocks Loved or Hated by Hedge Funds

    Nvidia

    One stock that insiders have been buying is Nvidia (NVDA), which is engaged in the provision of visual computing technologies and graphics processing unit, or GPU. This stock hasn’t done much this year; shares are off by around 4.4%.

    Nvidia has a market cap of $8.8 billion and an enterprise value of $6.3 billion. This stock trades at a reasonable valuation, with a trailing price-to-earnings of 16 and a forward price-to-earnings of 12.9. Its estimated growth rate for this year is 53.8%, and for next year it’s pegged at 14%. This is an extremely cash-rich company; the total cash position on its balance sheet is $2.47 billion, and its total debt is just $22.49 million.

    A director just bought 100,000 shares, or about $1.2 million worth of stock, at $11.91 per share.

    From a technical standpoint, this stock is currently trading above its 50-day moving average and below its 200-day moving average, which is neutral trendwise. This stock recently dropped from its June high of $20.05 a share to a recent low of $11.47 a share. In the past three months, the stock has found some big buying support at around $11.85 to $11.47 a share.

    If you’re bullish on this stock, I would look to buy some NVDA once it starts to break out above some past overhead resistance at around $15 to $16.30 a share on big volume. Look for volume that’s tracking in close to or above its three-month average action of 22.7 million shares. If that breakout triggers, I would then add to any long position once the stock takes out its 200-day moving average of $17.49 with volume.

    One could also look to buy this stock off any pullback that takes it back down near its 50-day of $13.54. If this stock is ready to uptrend again, then that level won’t get violated by much, so you could use a mental stop just below the 50-day.

    Nvidia shows up on lists of Semiconductor Stocks Liked by Hedge Funds and 10 Stocks That May Outperform Through 2011.

    Darden Restaurants

    Another name insiders are loading up on is Darden Restaurants (DRI), which operates full-service restaurants in the U.S. and Canada under brand names that include Red Lobster, Olive Garden and LongHorn Steakhouse. This stock hasn’t done much of anything so far in 2011, with shares up just over 1%.

    Darden has a market cap of $6.2 billion and an enterprise value of $7.7 billion. The stock trades at a reasonable valuation, with a trailing price-to-earnings of 13.9 and a forward price-to-earnings of 10.9. Darden’s estimated growth rate for this year is 10.9%, and for next year it’s pegged at 13.2%. This is not a cash-rich company; the total cash position on its balance sheet is $74.2 million, and its total debt is over $1.7 billion.

    A director just bought 20,000 shares, or $862.718 worth of stock, at $43.14 per share.

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    From a technical standpoint, this stock is just starting to trade back above both its 50-day and 200-day moving averages, which is bullish. This stock recently hit a near-term bottom at $40.29, and since then it has run up big to its current price of just over $47 a share. Shares of Darden are now quickly approaching a breakout if the stock can manage to get back above $48 to $49 a share.

    I would be a buyer of this stock on any weakness and anticipate the breakout that will trigger once DRI takes out $48 to $48 a share with big volume. Look for volume on any move above those levels that’s tracking in close to or above its three-month average action of 2.5 million shares. One could simply use a mental stop just below the 50-day of $45.37 in case the stock isn’t ready to breakout yet. If this stock does breakout, then target a run back towards its 52-week high of $53.81 a share.

    Darden is one of the highest-yielding leisure stocks.

    Avis Budget Group

    One rental and leasing company that insiders have been snapping up a large amount of stock in is Avis Budget Group (CAR), which provides car and truck rentals and ancillary services to businesses and consumers in the U.S. and internationally under the Avis and Budget brands. Insiders are finding some value here; this stock is off by over 22% so far in 2011.

    Avis has a market cap of $1.26 billion and an enterprise value of $9.3 billion. This stock trades at a very cheap valuation; its trailing price-to-earnings is 12.4, and its forward price-to-earnings is 6.6. Avis Budget’s estimated growth rate for the next quarter is 283%, and for this year it’s pegged at 100%. This is far from a cash-rich company, with a total cash position on its balance sheet opf $645 million and total debt of a whopping $8.79 billion.

    The CEO and chairman of the board just bought 50,000 shares, or $449,315 worth of stock, at $8.99 per share. A number of other directors have also stepped up and bought over $400,000 worth of Avis Budget stock in the last couple of weeks.

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    From a technical standpoint, this stock is currently trading right at its 50-day moving average and below its 200-day moving average, which is neutral trendwise. This stock collapsed from its July high of $17.80 a share to a recent low of $8.45 a share. Since hitting that low, the stock has rebound sharply on heavy volume back up to its current price of just over $12 a share.

    If you want to buy this stock, I would buy it off of any weakness with a stop near $11 a share. If you want to buy this stock off strength, then get long once it breaks out above $13.50 a share on heavy volume. Look for volume that’s tracking in close to or above its three-month average action of 2.3 million shares. I would add to any long position once this stock trades back above its 200-day moving average of $15.24 on strong volume.

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    Magnum Hunter

    In the oil and gas complex, insiders have some notable buying in Magnum Hunter (MHR), an independent oil and gas company engaged in the acquisition, drilling and production of oil and natural gas properties and prospects within the U.S. Insiders have spotted some deep value here; the stock has been hammered lower by over 44% so far in 2011.

    This company has a market cap of $501 million and an enterprise value of $619 million. This stock trades at a rich valuation, with a forward price-to-earnings of 30. Magnum Hunter’s estimated growth rate for this year is -75%, and for next year it’s pegged at 285.7%. This is not a cash-rich company; its total cash position is $4.75 million, and its total debt is $147.88 million.

    The vice president just bought 18,000 shares, or $170,520 worth of stock, at $3.21 per share.

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    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 smashed lower in the past three months with shares dropping from its July high of $7.90 to its current price of around $3.90. That said, the stock did just rebound hard after hitting a 52-week low of $2.33 with heavy volume. The big volume near the low looks like big capitulation by the bears since the stock has jumped sharply since hitting $2.33.

    If you’re looking to buy this stock, I would wait until shares can move back above its 50-day moving average of $4.26 a share with strong volume. Look for volume that’s tracking in close to or above its three-month average action of 3.5 million shares. I would then add to any long position once this stock takes out $4.37 a share and then $5.37 a share, which are both key overhead resistance levels. Use a mental stop just below the 50-day in case this stock isn’t ready to re-enter an uptrend.

    Magnum shows up on a list of 7 Marcellus Shale Plays to Watch.

    To see more stocks with notable insider buying, including American Railcar Industries (ARII), Apache (APA) and BSB Bancorp (BLMT), check out the Stocks With Big Insider Buying portfolio on Stockpickr.

    -- Written by Roberto Pedone in Winderemere, Fla.

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    At the time of publication, author had no positions in stocks mentioned.

    Roberto Pedone, based out of Windermere, Fla., is an independent trader who focuses on stocks, options, futures, commodities and currencies. He is also an outside contributor to Beconequity.com and maintains the website Maddmoney.net, which he sold to Blue Wave Advisors in 2008. Roberto studied International Business at The Milwaukee School of Engineering, and he spent a year overseas studying business in Lubeck, Germany.