Stock Quotes in this Article: AMAT, CERN, FDML, SREV, EVER

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.

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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.

EverBank Financial

One banking stock that insiders are loading up big on here is EverBank Financial (EVER), which provides a range of financial products and services directly to customers through multiple business channels. Insiders are buying this stock into some decent strength, since shares are up around 14% so far in 2012.

EverBank Financial has a market cap of $1.42 billion and an enterprise value of $3.47 billion. This stock trades at fair valuation, with a trailing price-to-earnings of 31 and a forward price-to-earnings of 9.67. Its estimated growth rate for next year is 8.6%. This is not a cash-rich company, since the total cash position on its balance sheet is $518.23 million, and its total debt is $2.61 billion.

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A director just bought 967,076 shares, or about $11.66 million worth of stock, at $12.06 per share.

From a technical perspective, EVER is currently trending above its 50-day moving average, which is bullish. This stock has been uptrending strong for the last four months, with shares rising from $10.44 to its recent high of $12.59 a share. During that uptrend, shares of EVER have mostly made higher lows and higher highs, which is bullish technical price action. That move has now pushed EVER within range if triggering a major breakout trade.

If you’re bullish on EVER, then I would look for long-biased trades once this stock breaks out above some near-term overhead resistance levels at $12.35 to $12.59 a share with high volume. Look for a sustained move or close above those levels with volume that registers near or above its three-month average action of 254,303 shares. If we get that action, then EVER will have a great chance of trending north of $13 a share.

Keep in mind that any move above $12.59 will push EVER into all-time-high territory, which is bullish technical price action.

Servicesource

Another stock that insiders are snapping up here is Servicesource (SREV), which manages the service contract renewals process for renewals of maintenance, support and subscription agreements on behalf of its customers. Insiders are buying this stock into some major weakness, since shares are off by over 37% so far in 2012.

Servicesource has a market cap of $719 million and an enterprise value of $589 million. This stock trades at a premium valuation, with a forward price-to-earnings of 68.50. Its estimated growth rate for this year is -22.2%, and for next year it’s pegged at 100%. This is a cash-rich company, since the total cash position on its balance sheet is $114.20 million and its total debt is just $1.51 million.

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A director just bought 349,704 shares, or $3.23 million worth of stock, at $9.10 to $9.39 per share.

From a technical perspective, SREV is currently trading below both its 50-day and 200-day moving averages, which is bearish. This stock was destroyed by the sellers during the last four months, with shares plunging from $16.77 to its recent low of $7.73 a share. During that sharp move lower, shares of SREV have been consistently making lower highs and lower lows, which is bearish technical price action. That said, shares of SREV have recently started to find buying interest at around $8 a share, and it’s reversed its bearish trend.

If you’re in the bull camp on SREV, then I would look for long-biased trades once this stock breaks out above some near-term overhead resistance levels at $10 to $10.64 a share with high volume. Look for a sustained move or close above those levels with volume that hits near or above its three-month average action of 1.1 million shares. If that breakout triggers soon, then SREV has a great chance of re-testing or possibly taking out its next major overhead resistance levels at $13 to $14 a share.

Cerner

One software player that insiders are jumping into here is Cerner (CERN), a supplier of health care information technology solutions, services, devices and hardware. Cerner solutions optimize processes for healthcare organizations. Insiders are buying this stock into some solid strength here, since shares are up over 18% so far in 2012.

Cerner has a market cap of $12.62 billion and an enterprise value of $11.78 billion. This stock trades at a premium valuation, with a trailing price-to-earnings of 36.34 and a forward price-to-earnings of 26.62. Its estimated growth rate for this year is 26.2%, and for next year it’s pegged at 17.4%. This is a cash-rich company, since the total cash position on its balance sheet is $980 million, and its total debt is $176.08 million.

A director just bought 14,000 shares, or around $1.02 million worth of stock, at $73.52 per share.

From a technical perspective, CERN is currently trading above its 200-day moving average and below its 50-day moving average, which is neutral trendwise. This stock has been downtrending badly for the last two months, with shares falling from $88.32 to a recent low of $70.37 a share. During that downtrend, shares of CERN were consistently making lower highs and lower lows, which is bearish technical price action. That said, shares of CERN have now formed a double bottom at $70.37 to $70.63 a share, and it looks poised to trigger a near-term breakout trade.

If you‘re bullish on CERN, then I would look for long-biased trades once this stock manages to break out above some near-term overhead resistance levels at $74.20 to $74.50 a share, and then above its 50-day moving average of $75.54 a share with high volume. Look for a sustained move or close above those levels with volume that hits near or above its three-month average action of 1,415,740 shares. If that breakout triggers soon, then look for CERN to re-test and possibly take out its next significant overhead resistance level at $78.53 to $82 a share.
On the flipside, I would avoid CERN or look for short-biased trades if it fails to trigger that breakout soon, and then drops back below its double bottom levels at $70.63 to $70.37 a share with high volume. If we get that action, then CERN will likely re-test or possibly take out its next major support level at $67.50 a share.

Applied Materials

Another stock that insiders are finding attractive here is semiconductor king Applied Materials (AMAT), which provides manufacturing equipment, services and software to the global semiconductor, flat panel display, solar photovoltaic and related industries. Insiders are buying this stock into some modest strength here, since shares are up by 9% so far in 2012.

Applied Materials has a market cap of $14.53 billion and an enterprise value of $14.25 billion. This stock trades at a cheap valuation, with a price-to-sales of 14.09 and a price-to-book of 14.49. Its estimated growth rate for this year is -43.8%, and for next year it’s pegged at 11%. This is a cash-rich company, since the total cash position on its balance sheet is $2.16 billion, and its total debt is $1.95 billion. This stock sports a dividend yield of 3.2%.

A director just bought 50,000 shares, or about $576,000 worth of stock, at $11.53 per share.

From a technical perspective, AMAT is currently trading above both its 50-day and 200-day moving averages, which is bullish. This stock recently bounced right off its 200-day moving average of $11.43 a share with high volume. That move has now pushed AMAT within range of triggering a near-term breakout trade.

If you’re in the bull camp on AMAT, then I would look for long-biased trades once this stock manages to break out above some near-term overhead resistance levels at $12.05 to $12.89 a share with high volume. Look for a sustained move or close above those levels with volume that’s near or above its three-month average volume of 12,580,500 shares. If that breakout triggers soon, then AMAT will have a great chance of re-testing and possibly taking out its next major overhead resistance level at $13.82 a share.

On the flipside, I would avoid AMAT or look for short-biased trades if it fails to trigger that breakout soon, and then drops below some major near-term support at $11.45 to $11.24 a share with heavy volume. If we get that action, then AMAT will trend back below both its 50-day and 200-day moving averages, which is bearish technical price action. Some possible downside targets are $10.75 to $10 a share.

Federal-Mogul

One more stock that insiders are loading up in here is auto and truck parts player Federal-Mogul (FDML), a global supplier of powertrain and safety technologies. Insiders are buying this stock into extreme weakness here, since shares are down by over 30% so far in 2012.

Federal-Mogul has a market cap of $1 billion and an enterprise value of $3.05 billion. This stock trades at cheap valuation, with a forward price-to-earnings of 5.63. Its estimated growth rate for this year is -26%, and for next year it’s pegged at 19.2%. This is not a cash-rich company, since the total cash position on its balance sheet is $716 million and its total debt is $2.84 billion.

Billionaire hedge fund manager Carl Icahn, who’s also the chairman of the board and beneficial owner just bought 239,149 shares, or around $2.25 million worth of stock, at $9.41 per share.

From a technical perspective, FDML is currently trading above its 50-day moving average and well below its 200-day moving average, which is neutral trendwise. This stock has been downtrending badly for the past six months, with shares plunging from $16.38 to its recent low of $8.67 a share. During that downtrend, shares of FDML have consistently made lower highs and lower lows, which is bearish technical price action. That said, the stock has started to find some buyers under $9 a share, and it’s starting to push above its 50-day at $10.03 a share.

If you’re bullish on FDML, then I would look for long-biased trades once this stock manages to break out above $10.17 a share with high volume. Look for a sustained move or close above that level with volume that registers near or above its three-month average action of 180,580 shares. If that breakout triggers soon, then FDML could bounce hard back towards its next significant overhead resistance levels at $10.88 to $11.79 a share, or possibly to $13 a share.


On the flipside, I would avoid FDML or look for short-biased trades if it fails to trigger that breakout soon, and then drops back below some major near-term support areas at $9.17 to $8.67 a share with heavy volume. . If we get that action, then FDML could easily take out its 52-week low at $8.67 and trend significantly lower.

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.


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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.