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5 Stocks With Big Insider Buying - 21049 views
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, it could end up going nowhere. Also, I say majority of the time because sometimes insiders are loaned money by the company to buy their own stock. Those loans are often times sweetheart deals and shouldn’t be viewed as organic insider buying.
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 whose insiders have been doing some big buying per SEC filings.
One stock whose key insiders are making some notable purchases is FuelCell Energy (FCEL), which is engaged in the development and production of stationary fuel cells for commercial, industrial, government and utility customers. It looks like insiders are finding some deep value here since the stock has dropped over 36% so far in 2011.
This company has a current market cap of $185 million and an enterprise value of $157 million. FuelCell isn’t a profitable company yet, and its operating cash flow is $37.33 million in the red. Levered free cash flow is $18 million in the red. FuelCell does have a decent amount of cash on its balance sheet at $24 million after you back out their total debt.
The chairman of the board just bought 100,000 shares or $132,000 worth of stock at $1.32 per share. The COO and the president and CEO also have stepped up and bought a combined $26,000 worth of stock in the past week.
From a technical standpoint, shares of FCEL are currently trading below both its 50-day and 200-day moving averages, which is bearish. That said, the stock also just formed a perfect double-bottom chart pattern at around $1.25 a share, which could be signaling that the stock is done going lower in the shorter-term.
If you’re looking to buy this stock, I would get long if you see FCEL take out some near-term overhead resistance at around $1.50 a share. A move above that level would get me long as long as you see it occur on strong volume. I would add to any long position if FCEL trades back above its 200-day moving average of $1.63 a share.
It’s worth noting that FCEL has a very high short interest at 9.6% of the tradable float. The bears have also been increasing their bets from the last reporting period by 17.1%, or by about 1.4 million shares. This stock could easily short squeeze back to its June high of $1.97 if it gets back above its 200-day moving average soon.
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One name in the health care sector whose insiders have been snapping up lots of shares is Medtox Scientific (MTOX), which, together with its subsidiaries, provides forensic and clinical laboratory services and offers diagnostic devices. Insiders are buying into strength here with MTOX since the stock is up over 17% year-to-date.
Medtox Scientific has a market cap of $134 million and an enterprise value of $133 million. This stock trades at a premium valuation, with a trailing price-to-earnings of 33 and a forward price-to-earnings of 17. This is a cash-rich company, but it’s almost not even worth mentioning since it only has $1.25 million of cash on its balance sheet.
This company recently reported strong second-quarter earnings that saw profits grow as demand for its drug testing equipment jumped. Medtox posted net income of $1.4 million, or 16 cents per share, vs. $1 million, or 11 cents per share from a year ago. Revenue jumped 11% to $27.9 million from $25.2 million.
The CEO, president and chairman of the board just bought 10,000 shares, or $145,690 worth of stock, at $14.57 per share.
From a technical standpoint, this stock has been slammed recently from its yearly high of $19.21 to its current price of around $15.30 a share. The stock also just found some buying support at a key technical level, its 200-day moving average, which is now $14.18. Despite the bounce off the 200-day, Medtox is still trading below its 50-day moving average of $16.93 a share.
If you’re looking to buy this stock, I would wait until it manages to trade back above its 50-day moving average. This stock just won’t be healthy from a technical view until it can get back above that key level. That said, the stock is playable for a trade above $15.58, which is a near-tem overhead resistance level. The relative strength index is at around 38, which is often a reading where stocks bounce off of.
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Insiders have been buying millions of dollars' worth of shares of Blyth (BTH), a multi-channel operating primarily in the home fragrance and decorative accessories industry. Insiders are really paying up to own shares here since this stock is up over 90% so far in 2011.
This company has a market cap of $546 million and an enterprise value of $451 million. It trades at a premium valuation with a trailing price-to-earnings of 30 and a forward price-to-earnings of 23. Blyth is a cash-rich company, with $191 million in cash on its balance sheet and $110 million in total debt. After you back out the debt, Blyth is sitting on a war chest of cash with $81 million.
The CEO and chairman of the board just bought 400,000 shares, or $20,916,000 worth of stock, at $52.29 per share.
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From a technical standpoint, this stock is extremely overextended form its 50-day and 200-day moving averages. For example, shares of BTH are trading 20 points above its 50-day moving average of $46.80. The relative strength index for BTH is showing an extreme reading of 92. This is often times a level where stocks selloff from because they’ve become way overbought.
If you’re interested in buying this stock, I would wait for a significant pullback from current levels. This stock is just too extended for my taste with an RSI reading over 90. I would look to buy this name near $52.50 to $50 a share, which is an area the stock based at previously before its huge run higher.
If you’re looking for a metal mining play whose insiders have been snapping up shares, then check out Titanium Metals (TIE), a producer of titanium melted and mill products with titanium production facilities in both the U.S. and Europe. This stock is off to a decent start so far in 2011, with shares up over 10%.
Titanium Metals has a market cap of $3.4 billion and an enterprise value of $3 billion. This stock isn’t cheap, trading at a forward price-to-earnings of 37 and a forward price-to-earnings of 20. Titanium Metals is extremely cash-rich, with over $289 million of cash on their balance sheet and zero debt.
A beneficial owner and chairman of the board just bought 49,525 shares, or $875,107 worth of stock, at $17.67 per share. This same insider also bought millions worth of TIE stock since early June.
From a technical standpoint, this just started to trade above both its 50-day and 200-day moving averages, which is a bullish and a healthy technical sign for any stock. The stock also just started to form a breakout chart pattern now that it has moved above some big overhead resistance at around $18.70 to $18.85 a share.
The way I would play TIE here is to be a buyer on any weakness since the stock looks like it’s starting to break out and wants to go higher. I would add to any long positions above $20.60 and $21 a share, and then add large if you ever see TIE take out its three-year high of $22.83 a share.
Salient MLP & Energy Infrastructure
One final stock that has seen some decent insider buying is Salient MLP & Energy Infrastructure (SMF), an organized, nondiversified, closed-end management investment company. This stock has done pretty much nothing in 2011, with shares off by around 2.4%. Stifel Nicolaus recently initiated coverage on this stock with a buy rating and a price target of $26 a share.
The CEO and president just bought 5,000 shares, or $122,374 worth of stock, at $24.47 per share.
This closed-end fund doesn’t have enough trading data to present a technical view, since it’s only been trading live since May 27 of this year.
If you want to buy this stock, I would look to jump in on any weakness and stop out of the trade if you see SMF trade below its lowest price ever of $23.77 a share. If you get long and SMF never moves below that price, I would then add aggressively if SMF takes out its all-time high of $25.76 a share.
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.