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5 Stocks With Big Insider Buying - 21463 views
BALTIMORE (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.
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 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, it could end up going nowhere.
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At the end of the day, large institutional money managers running big mutual funds and hedge funds 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.
One specialty retailer that’s seen some large insider buying is Cost Plus (CPWM), a retailer of casual home furnishings and entertaining products in the U.S. This stock hasn’t done much so far in 2011, with shares off by around 4.5%.
This company has a current market cap of $210 million and an enterprise value of $355 million. The stock trades at a trailing price-to-earnings of 21 and a forward price-to-earnings of 10. This isn’t a cash-rich company since they have $159 million in total debt and just $3.4 million in cash.
A director at Cash Plus just bought 309,950 shares, or $2.8 million worth of stock, at $8.88 to $8.94 per share. The company’s CEO also just bought 3,500 shares, or $31,500 worth of stock, at $9 per share.
From a technical standpoint, this stock has been beaten down from $11.65 a share in late April to its current price of around $9.25. The stock has started to make some lower highs in the past few weeks, but an uptrend pattern can’t be confirmed until it also makes higher highs. It’s worth pointing out that the stock has found some buying support at around $8.30 a share which is within 10 cents of its past support zone of $8.20.
One could buy this stock on any weakness and simply stop out of the trade if it breaks below $8.20 a share. I would add to this position if it trades above its 50-day moving average of $10.20 on heavy volume. Look for volume that’s well above the three-month average action of 210,000 shares.
It’s worth noting that the current short interest as a percentage of the float for Cost Plus is a rather large 10.4%. The bears have also been increasing their bets from the last reporting period by 6.2%, or 125,000 shares. Don’t look for any short covering rallies unless the bulls can push CPWM back above its 50-day moving average.
Another name that insiders have been buying large amounts of stock in is TransDigm Group (TDG), a global designer, producer and supplier of highly engineered aircraft components for use on commercial and military aircraft. This stock is off to a decent start in 2011, with shares up over 11%.
TransDigm Group has a market cap of $4 billion and an enterprise value of 6.6 billion. The stock currently trades at a trailing price-to-earnings of 30 and a forward price-to-earnings of 16. This company is loaded with $3.15 billion in total debt on its balance sheet and $505 million in total cash.
A director just bought 46,400 shares, or $3.8 million worth of stock, at $82.04 per share. This is the second time this director has loaded up on millions worth of TransDigm stock in the last two months. On May 12, the same insider bought 67,430 shares, or $5.63 million worth of stock, at $83.47 per share.
From a technical standpoint, this stock has been within a channel chart pattern between $85 on the upper end and $76 on the lower end. Shares of TransDigm are now trading below their 50-day moving average of $81.41. The stock has some near-term support at around $79 a share and near-term resistance at $82.32 a share.
One could be a buyer of this stock once it trades back above the 50-day on heavy volume that’s well above its three-month average action of 219,000 shares. I would add to any long position if it takes out $82.32, and then add again if it can breakout above its 52-week high and all-time high of $85.38 on heavy volume.
Equity Lifestyle Properties
Iniders at Equity Lifestyle Properties (ELS), an integrated owner and operator of lifestyle-oriented properties, are also doing a some big buying. Equity Lifestyle leases individual developed areas with access to utilities for placement of factory built homes, cottages, cabins or recreational vehicles. Shares are up just over 9% so far in 2011, so insiders are paying up for the stock since it was trading at $54 back in Jan.
This company has a market cap of $1.9 billion and an enterprise value of $3.2 billion. The stock currently trades at a trailing price-to-earnings of 45 and a forward price-to-earnings of 15. This company is far from cash-rich, with a total of $1.41 billion of debt on their books and just $43 million in total cash.
The chairman of the board just bought 92,000 shares, or $5.5 million worth of stock, at $59.50 per share.
From a technical standpoint, this stock has been in a very bullish uptrend for the entire year, with shares making higher highs and higher lows. The stock recently gapped up and broke out above some past overhead resistance at $60.05 to $60.63 a share on huge volume. volume on the breakout was 2.8 million shares vs. the three-month average volume of 229,000 shares. That said, the stock is quickly starting to fill the gap-up and looks poised to trend lower.
I would only look to buy this stock if it can hold the breakout prices mentioned above. If the breakout does hold, add to any long positions if it takes out its 52-week high of $63.27 on heavy volume.
If you’re looking for a biotech stock with big insider buying, then put Genomic Health (GHDX), a life science company focused on the development and commercialization of genomic-based clinical diagnostic tests for cancer, on your radar. This stock is off to a very strong start in 2011, with shares up over 20%. Genomic is also one of the stronger stocks in the market right now since it currently trades just two points off its 52-week high of $27.99. Insiders are paying up to own stock, here which is bullish.
Genomic Health has a market cap of $769 million and an enterprise value of $699 million. This isn’t a cheap stock since it trades at a trailing price-to-earnings of 134 and a forward price-to-earnings of 67. Genomic is a cash-rich company, with over $63 million in cash on the books and zero debt.
A director and beneficial owner just bought 181,693 shares, or about $5 million worth of stock, between $27.47 to $27.51 per share.
From a technical standpoint, shares of Genomic have been trading within a channel chart pattern since April between $25 on the low end and around $28 on the high end. This stock has just pulled back to its 50-day moving average of $26.16 a share. Once could be a buyer of the stock right here and simply use a mental stop below $25. I would add heavily to this position if you see it breakout above $28 with heavy volume. Look for volume that’s greater than its three-month average action of 99,000 shares.
It’s worth noting that Genomic has a rather high short interest. The current short interest as a percentage of the float for Genomic stands at 10%. If you like to trade breakouts like I do, I would look for a big short squeeze if we get that move above $28 with volume.
White Mountains Insurance Group
One final stock that has seen some big insider buying recently is White Mountains Insurance Group (WTM), which is engaged in the businesses of property and casualty insurance and reinsurance through its subsidiaries and affiliates. This stock is off to a hot start in 2011, with shares up around 19%.
White Mountains has a market cap of $3.2 billion and an enterprise value of $2.8 billion. This stock currently trades at a trailing price-to-earnings of 34 and a forward price-to-earnings of 27. This company has $1.15 billion of cash on their books and a net cash position of $332 million when you back out its total debt of $818 million.
A director just bought 2,000 shares, or $804,000 worth of stock, at $402 per share. This is the first notable open market purchase of stock by a White Mountain insiders since Aug. 2010.
From a technical standpoint, this stock has found some buying support recently at around $390 to $395 a share. One could be a buyer soon on any weakness and simply use a mental stop below $390 in case it wants to pull back with the rest of the market. If White Mountain can hold $390 and you buy it, I would add to the position once it takes out its 52-week high of $413.98 with volume. Look for volume that’s much higher than its three-month average volume of 25,000 shares.
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.