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5 Stocks With Big Insider Buying - 11914 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.
But insiders usually buy their own shares for one reason: They think the stock is a bargain and has tremendous upside.
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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 some stocks whose insiders have been doing some big buying per SEC filings.
One rare earth player stock whose insiders have done some buying recently is Molycorp (MCP), a rare earth oxide producer in the Western hemisphere that owns a rare earth project outside of China. The company is in development stage. This stock hasn’t done much if you owned it since the start of the year; shares up just about 4%.
This company has a market cap of $4.3 billion and an enterprise value of $4.1 billion. The stock trades at a rich trailing price-to-earnings of 187 and a more reasonable forward price-to-earnings of 13. This is a cash-rich company, with $680.28 million of cash on their balance sheet and around $200 million of total debt. Once you back out the debt, Molycorp has around $480 million in total cash on their books.
This company recently hit profitability in their second-quarter on record net sales of $99.6 million. Their gross margins hit 57% and earnings per fully diluted share were 52 cents. Molycorp’s average sale price of REO during the second-quarter rose 91% to $72.10 per kilogram vs. $37.73 per kilogram in the first quarter.
The president and CEO just bought 4,200 shares, or $247,884 worth of stock, at $59.02 per share.
From a technical standpoint, shares of Molycorp are trading below both the 50-day and 200-day moving averages, which is bearish. The stock started to show signs of breaking its uptrend, now that the stock is starting to put in some lower highs and potentially lower lows. This stock won’t resume its uptrend until it can start making higher lows again, so monitor that action closely.
If you’re looking to buy this stock, I would wait until its trading back above both its 50-day and 200-day moving averages and holds above those levels. You could also put this on your buy list if it trades back toward some recent support zones at around $45 to $46.50 a share and buy the stock if it holds around those price points.
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In the gold and silver sector, insides have been snapping up shares of Hecla Mining (HL), which is engaged in discovering, acquiring, developing, producing and marketing silver, gold, lead and zinc. Insiders are clearly finding some value here in HL shares since the stock is down 35% so far in 2011.
Hecla Mining has a market cap of $2 billion and an enterprise value of $1.6 million. This stocks trades at a very reasonable valuation, with trailing price-to-earnings of 25 and a forward price-to-earnings of 10. Hecla’s estimated growth rate for this year is 87% and for next year is 15.5%. This is a cash-rich company, with $377.44 million in cash on its balance sheet and just $7.52 million in total debt.
This company just reported sales of $117.9 million for the second quarter, a 33% increase over the same period in 2010. Net income was $33.3 million, or 12 cents per share, and operating cash flow was $66.3 million, a 16% jump from the same period last year.
The president and CEO just bought 33,000 shares, or $242,880 worth of stock, at $7.36 per share.
From a technical standpoint, this stock is trading below both its 50-day and 200-day moving averages, which is bearish. The stock has also been stuck in a nasty downtrend for the past six months, where the stock as making lower highs and lower lows. That said, the stock is trading just above some longer-term support at around $6.50 a share.
If you want to buy this stock, then I would look to jump in and go long around or under $7 a share, which seems to be a level where buyers step into the stock. I would only add to long position initiated under or around $7 once HL trades back above its 50-day moving average of $7.65 a share on big volume. Look for volume that’s close to or well above its three-month average action of 8.4 million shares.
Hecla shows up on a recent list of 8 Stocks Under $8 With Upside.
In the communications services sector, insiders have been doing some big buying of Clearwire (CLWR), a provider of fourth-generation wireless broadband services. Clearwire builds and operates next generation mobile broadband networks that provide high-speed mobile Internet and residential access services, as well as residential voice services. Insiders are finding some deep value here in CLWR shares, with the stock is off by a whopping 41% so far this year.
This company has a market cap of $554 million and an enterprise value of $3.8 billion. The company is currently not profitable, and their operating cash flows is -$1.18 billion and levered free cash flow is -$2.47 billion. This is far from a cash-rich company since Clearwire has over $4 billion in total debt on their balance sheet and just $829.45 million in total cash.
This stock recently hit an all-time low after it reported a huge net loss of $169 million for the second quarter and said it would adopt LTE, or long-term evolution, as a new data technology. Clearwire’s current network is based on WiMax, which has failed to become popular.
The chairman of the board and interim CEO just bought 2,755,000 shares, or about $5 million worth of stock, at $1.78 to $1.89 per share.
From a technical standpoint, this stock has been stuck in very persistent downtrend for the past six months. During that timeframe, there was never a technical signal that flashed to buy this stock, since CLWR was making lower highs and lower lows. That said, the stock just found some big buying support after the chairman bought shares. Some big upside volume has started to move into this stock after it hit its all-time low of $1.32 a share.
If you want to buy this stock, I would look to add this name on any notable weakness since shares up over 30% today. Chasing a stock up 30% is rarely a good trading idea. That said, what’s great about today’s action is that CLWR has now managed to break out above some past overhead resistance at $2.50 a share. The stock has also moved back above its 50-day moving average of $3.06 on huge volume. Volume today has already clocked in at over 15 million shares which is well above its three-month average action of 6.6 million shares.
One could buy this stock on any weakness as long as it holds above the breakout price of $2.50 a share. I would add to any long position initiated once CLWR takes out its next significant overhead resistance level at $3.30 a share on strong volume. I would stop out of any long trades if you see CLWR trade back below $2.50 a share on heavy volume.
ATP Oil & Gas
In the oil and gas sector, insiders are snapping up stock in ATP Oil & Gas (ATPG), which is engaged in the acquisition, development and production of oil and natural gas properties in the Gulf of Mexico and the UK and Dutch sectors of the North Sea. This is another beaten-down stock whose insiders are finding some deep value; shares of ATPG are down about 40% so far in 2011.
ATP Oil & Gas has a market cap of $512 million and an enterprise value of $2.3 billion. This stock trades at a cheap valuation, considering its forward price-to-earnings is 6.74, and their growth rate for this year is 75% and for next year is 192%. This is not a cash-rich company; it has only $185 million in cash on its books and over $1.9 billion in total debt.
From a technical standpoint, this stock collapsed recently from a high in July of $16 a share to its recent low of $6.26 a share. Shares of ATPG are now trading below both its 50-day and 200-day moving averages, which is bearish. That said, some large upside volume just started to move into this stock after the selling volume expanded dramatically on the down to $6.26 a share.
If you’re looking to buy ATPG, I would get long this stock closer to some big support at around $8 a share. After the stock spiked down to $6.26 a share it found big volume buying at round $8 the next day. I would buy it around $8 and stop out if it drops a few percent below that level. If you we don’t get a test of $8 anytime soon, then I would look to buy this stock once it trades above some big overhead resistance at around $11.11 a share on big volume.
A move over $11.11 would signal a breakout and should set the stock off to retest its 50-day moving average of $14 a share, or possibly even higher up to the $15 a share. Look for confirmation of a high probably breakout trade if you see ATPG move over $11.11 on volume that’s close to or greater than 1.6 million shares.
In the biotech sector, insiders have done some decent buying in Valeant Pharmaceuticals (VRX), a multinational specialty pharmaceutical company that develops, manufactures and markets a range of pharmaceutical products. This is another situation where insiders are finding some deep value in the stock; shares are off by over 15% so far in 2011.
Valeant has a market cap of $12 billion and an enterprise value of $16.9 billion. The stock trades at a cheap valuation, considering its trailing price-to-earnings is 13 and its estimated growth rate for this year is 30.9% and for next year is 15.6%. The company isn’t cash-rich, with $4.55 billion in total debt on its balance sheet and just $241 million in total cash.
The CEO just bought 155,642 shares, or about $6 million worth of stock, at $38.62 per share.
From a technical standpoint, this stock recently plunged on big volume from around $56 a share to its current price of around $40 a share. The stock is also trading below both its 50-day and 200-day moving averages, which is bearish. That said, the stock has been making some higher lows during the past couple of weeks and it has tested its 200-day moving average of $42.36 a share.
If you’re looking to buy this stock, I would either buy it on any weakness with a protective stop below $37.85, or I would wait until it trades above its 200-day moving average on strong volume. Look for volume that’s greater than or close to its three-month average volume of 2.8 million shares. I would add to any long position once you see the stock trade above some near-term overhead resistance at $42.71 a share on heavy volume.
Valeant is one of the top holdings of Julian Robertson's Tiger Management, which boosted its position by 7.3% in the second quarter.
To see more stocks with notable insider buying, includingLeap Wireless (LEAP), Transatlantic Petroleum (TAT) and Exxon Mobil (XOM), 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.