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5 Stocks With Big Insider Buying - 20116 views
WINDERMERE, Fla. (Stockpickr) -- Corporate insiders sell their own companies’ stock for a variety of reasons. They might need the cash for a big personal purchase such as a house or an expensive luxury car. 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 has reached a valuation where the upside is limited. Some even dump their own stock because they have inside knowledge on their sector and they might think that a slowdown is coming.
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 go up, that doesn’t guarantee that 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 huge 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.
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 stock that’s seen some huge insider buying is Pacific Sunwear (PSUN), a specialty retailer rooted in the action sports, fashion and music influences of the California lifestyle. This stock has been absolutely crushed in 2011, with shares off by around 37%, so clearly insiders are finding some value here.
This company has a current market cap of $221.83 million and an enterprise value of $176.64 million. Pacific Sunwear has a cash position of $34.62 million on its balance sheet after you back out its total debt of $29.09 million. This stock is currently trading below its book value per share of $3.24.
Greek Investments, a beneficial owner of 10% or more of the company, just bought 848,367 shares, or $2.7 million worth of stock, at $3.10 to $3.29 per share. Greek Investments is run by a little-known Greek family, the Konstantinu clan, and it has been buying Pacific Sunwear all the way down since October 2010 at around $6 a share. My take here is that Greek Investments sees Pacific Sunwear as a turnaround story, or they want to take this company private and or put it up for sale.
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That said, buying a stock all the way down and throwing good money after bad is never a good investment or trading strategy. Nothing demonstrates that more than the actions of Greek Investments, which has been buying the stock at a lower price almost every time since last October. Obviously, the firm is committed to this position, but that doesn’t mean it will be ultimately right.
From a technical standpoint, Pacific Sunwear has recently traded all the way down to a major one-year support zone at around $3 a share. If you want to buy this stock, be smart and don’t do what Greek Investments did and just blindly average all the way down. Buy it around $3 to $3.30 and use a stop just below $2.92 a share. You will know right away if you’re right because the stock will either hold this major support level or it won’t.
It’s also worth noting that the stock is heavily shorted with its current short interest as a percentage of the float at 21.4%. If Pacific Sunwear finds some support at current levels, then the stock could easily see some big short covering. We could have a great trading opportunity here with Pacific Sunwear, but be cautions because the stock has been stuck in nasty downtrend since last Dec.
Insiders have been doing some active buying recently in best-of-breed coal player Walter Energy (WLT), a producer and exporter of metallurgical coal for the global steel industry that also produces steam coal, coal bed methane gas (natural gas), metallurgical coke and other related products. This stock hasn’t done much so far in 2011, with shares virtually flat on the year.
Walter Energy has a market cap of $6.86 billion and an enterprise value of $7.21 billion. This stock is reasonably priced, with shares trading at a trailing price-to-earnings ratio of 17.96 and a forward price-to-earnings of 8.20. This company has a decent amount of net cash on its balance at $124.94 million after you back out the $168.47 million in total debt.
A director just bought 1,500 shares, or $208,035 worth of stock, at an average price of $138.69 per share. This was the first open market purchase of stock by a Walters Energy insider that I could find in the past couple of years.
From a technical standpoint, WLT is looking slightly bearish since the stock recently formed a topping chart pattern at around $143.76 to $141.50 a share. The stock has now also sliced through its 50-day moving average of $127.97 a share. There’s some near-term support at $126.22 a share, but if it trades below that level, then look for a test of its next major support level at around $115 a share.
I wouldn’t be a buyer of WLT at current levels. This stock is behaving like it wants to trade lower, so let it correct and then look for the stock to setup in a sideways trading pattern. Once you see that happen, then you can start to buy it once it starts uptrending.
I would also like to point out that Walter Energy is heavily shorted with around 9.9% of the current float sold short as of April 15. A high short interest can cut both ways on a stock. When the stock is downtrending, a high short interest can push it lower with ease, so I don’t see any short-squeeze potential here when I look at the current trend in Walter.
Walter, one of TheStreet Ratings' top-rated metals and mining stocks, shows up in the portfolio of Ken Heebner's Capital Growth Management as of the most recently reported period.
Nasdaq OMX Group
Another stock whose insiders have been doing some buying in is Nasdaq OMX Group (NDAQ), a global exchange group that delivers trading, exchange technology, securities listing and public company services across six continents. This stock is off to a decent start in 2011, with shares up around 12%.
This company has a market cap of $4.67 billion and an enterprise value of $10.16 billion. This stock is cheap, trading at a trailing price-to-earnings of 13.86 and a forward price-to-earnings of 9.53. This company is far from cash-rich with only $378 million in cash on their balance sheet and a very large $5.76 billion in total debt.
A director at Nasdaq OMX Group bought 10,000 shares, or $267,873 worth of stock, at $26.77 to $26.79 per share.
From a technical standpoint, Nasdaq recently formed a triple-top chart pattern at around $29.70 to $29 a share. The stock has now sliced through its 50-day moving average at $27.08. The next significant support level on this stock sits at around $25 to $24.30 a share, so I wouldn’t touch this name unless it can hold those levels.
The bottom line: Nasdaq is in a clear downtrend, so wait until that trend is over and the stock finds support before you jump into this exchange player.
People’s United Financial
If you’re looking for a bank stock with insider buying, then take a look at savings and loan holding player People’s United Financial (PBCT), which operates as the bank holding company for People’s United Bank. This stock is down modestly on the year, with shares off by around 3%.
This company has a market cap of $4.75 billion and an enterprise value of $4.48 billion. The stock trades at a trailing price-to-earnings of 56.50 and a forward price-to-earnings of just 15.95.
From a technical standpoint, People’s United is one of the better-looking bank stocks, with shares currently trading above both its 50-day and 200-day moving averages. The stock has run into some resistance at around $13.80, and it has some bigger resistance just above that level at $14.15 a share.
One way to trade this name is to buy it on any sizable pullback back towards the 50-day moving average. You can then just use a stop right below that level. I would only add to the position once it takes out $14.15.
It’s worth noting that People’s United has a decent short interest as a percentage of its float at around 5.9%. So if the stock takes out $14.15 it could see a short squeeze since it has failed around that level two times since last May.
People's United shows up on a recent list of 10 Banks With Rising Revenue.
Another bank stock that’s seen some big insider buying is financial holding player KeyCorp (KEY), which provides a range of retail and commercial banking, commercial leasing, investment management, consumer finance and investment banking products and services. This stock has pretty much done nothing so far in 2011, with shares down around 3%.
This company has a market cap of $7.53 billion and an enterprise value of $20.29 billion. The stock trades at reasonable valuation, with a trailing price-to-earnings of 19.24 and forward price-to-earnings of 11.10. KeyCorp is far from cash-rich, with a total cash position on its balance sheet of $2.27 billion and a large debt position of $14.93 billion.
From a technical standpoint, shares of KeyCorp have been making lower highs and lower lows since mid-February. I wouldn’t be a buyer of this stock until that pattern is broken, or until it trades back above its 50-day moving average of $8.84 a share. The near-term support levels on the stock sit at $8.30 to $8 a share. If it breaks below those levels then look for a re-test of its next significant support level at $7.44 a share.
KeyCorp also shows up on a recent list of 10 Banks With Rising Revenue.
To see more stocks with notable insider buying, check out the 5 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.