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5 Stocks With Big Insider Buying - 15379 views
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 an expensive boat. 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 by the markets and the risk/reward is no longer attractive. Some even dump their own stock because they have inside knowledge on their sector and they might think that an economic slowdown is in the cards.
But they 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 happen. Insiders can have all the conviction in the world that their stock is a bargain, 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 a number of companies whose insiders have been loading up on their own stock recently per SEC filings.
One energy stock insiders have been loading up on is El Paso (EP), an energy company that operates in the natural gas transmission and exploration and production sectors of the energy industry. Insiders are paying up to own the stock here since it is up over 50% so far in 2011. I consider that bullish since they are trading with the trend and see value at higher prices.
This company has a current market cap of $16 billion and an enterprise value of $30 billion. The stock trades at a trailing price-to-earnings of 37 and a forward price-to-earnings of 15. This company is far from cash-rich, with only $242 million in cash on the books and a whopping $14 billion in total debt.
El Paso’s chairman of the board and CEO just bought 24,000 shares, or $502,560 worth of stock, at $20.94 per share. This is the first open market purchase by an EP insider this year -- or over the last two years, for that matter.
From a technical standpoint, shares of EP recently broke out above some past overhead resistance at around $19.67 a share on massive volume. Volume on the breakout was 51 million shares which is well above the three-month average volume of just 11.4 million shares. One could look to buy this stock on any weakness as long as it doesn’t trade much below that breakout level.
Another energy company whose insiders have been buying huge amounts of stock in is NuStar Energy (NS), which is engaged in the terminalling and storage of petroleum products, the transportation of petroleum products and anhydrous ammonia and asphalt and fuels marketing. This stock hasn’t done much so far in 2011, with shares off by around 8%.
NuStar has a market cap of $4.1 billion and an enterprise value of 6.4 billion. The stock currently trades at a trailing price-to-earnings of 19 and a forward price-to-earnings of 17. This company has very little cash on its balance sheet, at $70 million, vs. total debt of $2.4 billion.
A director just bought 53,345 shares, or $3.3 million worth of stock, at $62.86 per share. This is the second time this director has loaded up on millions of dollars' worth of NS stock in the month of May. An earlier purchase totaled 76,000 shares, or over $4.8 million worth of stock.
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From a technical standpoint, shares of NuStar have been making higher lows and higher highs since mid-2009. This is an incredibly bullish-looking chart from a longer-term perspective. I would be a buyer of this stock on any weakness as long as it continues to hold that pattern. A pullback towards $34 or $33.50 a share could be the next great buy point with a tight stop.
If you’re looking pharma stock where insiders are doing some massive buying, then put Furiex Pharmaceuticals (FURX) on your radar. This drug development collaboration company's product pipeline includes two marketed products and three programs in development, including late-stage compounds, in multiple therapeutic areas. This is another insider buy that I like since the executives are buying into an uptrend. Shares of Furiex are up around 17% so far in 2011.
Furiex has a market cap of $167 million and an enterprise value of $99 million. The company is cash-rich, with around $67 million in cash on the books and zero debt. Spun off from PPD as a separate public company in June 2010, Furiex is currently not profitable.
A Furiex director just bought 264,516 shares, or $4.1 million worth of stock, at $28.41 per share. This large buying in FURX is very bullish because it’s also coming on the heels of a $6.5 million purchase just the week before by the same director.
From a technical standpoint, traders should watch for a breakout play in FURX if the stock can manage to trade above some past overhead resistance at around $17 to $17.41 a share. A move above that level on heavy volume should be considered bullish. Look for volume that’s well above the three-month average activity of 57,000 shares. If we get that move, this stock could quickly revisit its all-time high of $20 a share. I would add heavily to that position if it takes out $20 with strong volume as well.
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Use a mental stop below the breakout levels I mentioned in case the stock fails to hold a move through that stiff resistance. You can also consider buying this stock on any weakness as long as it doesn’t trade back below the 50-day moving average of $15.76 on heavy volume. I am trend trader, so personally I would only play the breakout if we get it.
Another stock with some big insider buying is Medtronic (MDT), a medical technology company engaged in research, design, manufacture and sale of products to alleviate pain, restore health and extend life. It manufactures and sells device-based medical therapies. This stock hasn’t done much so far in 2011, with shares up by around 8%.
Medtronic has a market cap of $43 billion and an enterprise value of $50.5 billion. The stock currently trades at trailing price-to-earnings of 14 and a forward price-to-earnings of 10. That forward valuation basically puts the stock right in line with its projected future growth rates. Medtronic is estimated to grow 3.3% this year and 9.5% next year.
A Medtronic director just bought 25,000 shares, or $1 million worth of stock, at $40.70 per share. This is the second large purchase by this director in the last seven months. In December 2010, the same director bought a whopping $3.7 million worth of stock at $37.06 per share. I consider this bullish in the longer-term when you see an insider averaging up with their buys since they’re finding value at higher prices.
That said, shares of Medtronic recently formed a double top chart pattern at around $43.15 to $43.30 a share. The stock is now trading below its 50-day moving average of $40.72 a share. I would avoid this stock if you see it fail to hold some near-term support at around $39.90 a share. The way this stock is trending right now, it looks like investors might get a better chance to buy it closer to the 200-day moving average of $36.81 a share.
If it does hold that near-term support, though, I would only be a buyer if it breaks back above the 50-day on heavy volume. Look for volume that’s well above the three-month average volume of 5.4 million shares.
Medtronic, one of the top-yielding health services stocks, received big bets in the first quarter from John Paulson, who increased Paulson & Co.'s position in the stock to 9.3 million shares, and David Tepper, whose Appaloosa Management holds 1.5 million shares.
One more stock that has seen some big insider buying recently is FXCM (FXCM), an online provider of foreign exchange, or FX, trading and related services to over 165,000 retail and institutional customers globally. It offers its customers access to over-the-counter FX markets through its technology platform. Insiders might see some deep value here since the stock has been crushed so far in 2011, with shares down over 25%.
This stock had its IPO back in December 2010 and has not looked up since then. Shares have fallen from around $15 a share to a recent low of $8.80. FXCM has a market cap of $169 million and an enterprise value of -$29 million. This stock trades at a trailing price-to-earnings of 58 and a forward price-to-earnings of 8. This company is extremely cash-rich, with over $203 million of cash on its balance sheet and no debt. The stock is trading below its total cash-per-share ratio of $11.74 with shares currently at around $9.80.
A director just bought 100,000 shares, or $901,002 worth of stock, at $9.01 per share. This is the first notable open market purchase of stock by a FXCM insider since the company has come public.
From a technical standpoint, this stock just found some big buying support at around $8.80 to $8.90 a share. This support from the bulls came after the stock recently dropped from $13 to $8.80 in just three days. One could be a buyer of this stock on any weakness and simply use a mental stop below $8.80. I would only add to the position once it gets back above its 50-day moving average of $12.08 a share.
It’s worth noting that this is a heavily shorted stock. The current short interest as a percentage of the float stands at 16.7% as of May 13. These short-sellers have also increased their bets from the last reporting period by about 5.2, or by around 141,000 shares. This stock could easily see a big short squeeze if market players decided to step in and follow the insiders.
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.
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.