Stock Quotes in this Article: AVT, INO, MNK, THRX, TTS

DELAFIELD, Wis. (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 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, it's 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 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 five stocks whose insiders have been doing some big buying per SEC filings.

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Tile Shop

One home improvement stores player that insiders are active in here is Tile Shop (TTS), which operates as a specialty retailer of manufactured and natural stone tiles, setting and maintenance materials, and related accessories in the U.S. Insiders are buying this stock into major weakness, since shares are off by 38% so far in 2014.

Tile Shop has a market cap of $573 million and an enterprise value of $652 million. This stock trades at a premium valuation, with a trailing price-to-earnings of 45 and a forward price-to-earnings of 26. Its estimated growth rate for this year is -20.5%, and for next year it's pegged at 35.5%. This is not a cash-rich company, since the total cash position on its balance sheet is $3.53 million and its total debt is $96.15 million.

A director just bought 70,000 shares, or about $683,000 worth of stock, at $9.77 per share.

From a technical perspective, TTS is currently trending below both its 50-day and 200-day moving averages, which is bearish. This stock has been uptrending over the last few weeks, with shares moving higher from its low of $9.06 to its recent high of $11.58 a share. During that uptrend, shares of TTS have been consistently making higher lows and higher highs, which is bullish technical price action. That move has now pushed shares of TTS within range of triggering a near-term breakout trade.

If you're bullish on TTS, then I would look for long-biased trades as long as this stock is trending above some near-term support at $10.50 and then once it breaks out above some near-term overhead resistance at $11.58 a share with high volume. Look for a sustained move or close above that level with volume that hits near or above its three-month average volume of 688,592 shares. If that breakout materializes soon, then TTS will set up to re-test or possibly take out its next major overhead resistance levels at $12 to its 50-day moving average of $12.99. Any high-volume move above $12.99 will then give TTS a chance to tag $13.50 to $14 a share.

Inovio Pharmaceuticals

Another biotechnology player that insiders are jumping into here is Inovio Pharmaceuticals (INO), which discovers, develops, and develops synthetic vaccines and immune therapies focusing on cancers and infectious diseases. Insiders are buying this stock into notable weakness, since shares are off by 17.4% so far in 2014.

Inovio Pharmaceuticals has a market cap of $578 million and an enterprise value of $415 million. This stock trades at a premium valuation, with a price-to-sales of 30.15 and a price-to-book of 4.30. Its estimated growth rate for this year is 56.9%, and for next year it's pegged at -43.5%. This is a cash-rich company, since the total cash position on its balance sheet is $108.86 million and its total debt is zero.

The CEO just bought 250,000 shares, or about $2.26 million worth of stock, at $9.05 per share.

From a technical perspective, INO is currently trending below both its 50-day and 200-day moving averages, which is bearish. This stock has been downtrending badly for the last few weeks, with shares moving lower from its high of $14.20 to its recent low of $8.60 a share. During that downtrend, shares of INO have been consistently making lower highs and lower lows, which is bearish technical price action. Shares of INO have now started to explode higher off that $8.60 low and it's quickly approaching a big breakout trade.

If you're in the bull camp on INO, then I would look for long-biased trades as long as this stock is trending above Wednesday's intraday low of $8.92 or above that recent low of $8.60 and then once it breaks out above both its 50-day at $10.11 and its 200-day at $10.24 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 1.87 million shares. If that breakout hits soon, then INO will set up to re-test or possibly take out its next major overhead resistance levels at $11 to $11.50, or even $12 to $12.50 a share.

Mallinckrodt

One healthcare player that insiders are snapping up a massive amount of stock in here is Mallinckrodt (MNK), which manufactures, markets, and distributes branded and generic specialty pharmaceuticals, active pharmaceutical ingredients (API), and diagnostic imaging agents worldwide. Insiders are buying this stock into major strength, since shares are up large by 33%.

Mallinckrodt has a market cap of $4 billion and an enterprise value of $5.8 billion. This stock trades at a reasonable valuation, with a trailing price-to-earnings of 64 and a forward price-to-earnings of 10.4. Its estimated growth rate for this year is 36.9%, and for next year it's pegged at 53.5%. This is not a cash-rich company, since the total cash position on its balance sheet is $327.90 million and its total debt is $2.22 billion.

A beneficial owner just bought 700,200 shares, or about $49.12 million worth of stock, at $69.69 to $70.34 per share.

From a technical perspective, MNK is currently trending below its 50-day moving average and above its 200-day moving average, which is neutral trendwise. This stock has been downtrending badly for the last month and change, with shares moving lower from its high of $83.20 to its recent low of $67.18 a share. During that downtrend, shares of MNK have been consistently making lower highs and lower lows, which is bearish technical price action.

If you're bullish on MNK, then I would look for long-biased trades as long as this stock is trending above its recent low of $67.18 or above its 200-day at $64.58 and then once it breaks out above some near-term overhead resistance at $71.19 a share with high volume. Look for a sustained move or close above that level with volume that hits near or above its three-month average volume of 1.70 million shares. If that breakout kicks off soon, then MNK will set up to re-test or possibly take out its next major overhead resistance levels at $75 to $77.50, or $78 a share.

Avnet

One electronics wholesales player that insiders are active in here is Avnet (AVT), which distributes electronic components, enterprise computer and storage products, IT solutions and services, and embedded subsystems in the Americas, Europe, the Middle East, Africa, and the Asia/Pacific. Insiders are buying this stock into modest weakness, since shares are down by 4.3% so far in 2014.

Avnet has a market cap of $5.8 billion and an enterprise value of $6.9 billion. This stock trades at a reasonable valuation, with a trailing price-to-earnings of 12 and a forward price-to-earnings of 8.4. Its estimated growth rate for this year is 9.4%, and for next year it's pegged at 8.2%. This is not a cash-rich company, since the total cash position on its balance sheet is $928.97 million and its total debt is $2.08 billion. This stock currently sports a dividend yield of 1.4%.

A director just bought 191,000 shares, or about $7.91 million worth of stock, at $41.43 per share.

From a technical perspective, AVT is currently trending below both its 50-day and 200-day moving averages, which is bearish. This stock recently formed a double bottom chart pattern at $40.90 to $40.77 a share. Following that bottom, shares of AVT have started to rip higher with strong upside volume flows.

If you're bullish on AVT, then I would look for long-biased trades as long as this stock is trending above that recent low of $40.77 and then once it breaks out above its 200-day at $42.71 and its 50-day at $43.59 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 661,673 shares. If that breakout begins soon, then AVT will set up to re-test or possibly take out its next major overhead resistance levels at $43.95 to $45.24 a share, or $45.53 a share. Any high-volume move above $45.53 will then give AVT a chance to re-fill its previous gap-down-day zone from April that started at $46.74 a share.

Theravance

One final stock with some large insider buying is Theravance (THRX), which focused on developing respiratory products. Insiders are buying this stock into major weakness, since shares are off sharply by 41% over the last six months.

Theravance has a market cap of $2.6 billion and an enterprise value of $2.9 billion. This stock trades at a premium valuation, with a forward price-to-earnings of 226. Its estimated growth rate for this year is 31.1%, and for next year it's pegged at 108.70%. This is not a cash-rich company, since the total cash position on its balance sheet is $334.48 million and its total debt is $737.50 million.

A beneficial owner just bought 172,651 shares, or about $3.91 million worth of stock, at $22.66 per share.
From a technical perspective, THRX is currently trending below both its 50-day and 200-day moving averages, which is bearish. This stock has been downtrending badly for the last month, with shares falling from its high of $31.80 to its recent low of $21.01 a share. During that move, shares of THRX have been consistently making lower highs and lower lows, which is bearish technical price action. That said, shares of THRX have now started to bounce off that $21.01 low and the stock is breaking out above some near-term overhead resistance at $22.50 a share.

If you're bullish on THRX, then look for long-biased trades as long as this stock is trending above that recent low of $21.01 and then once it breaks out above Wednesday's intraday high of $22.94 a share with high volume. Look for a sustained move or close above that level with volume that hits near or above its three-month average action of 1.22 million shares. If that breakout hits soon, then THRX will set up to re-test or possibly take out its next major overhead resistance levels at $25 to its 50-day moving average of $26.33 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 Delafield, Wis.

 

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At the time of publication, author had no positions in stocks mentioned.


Roberto Pedone, based out of Delafield, Wis., is an independent trader who focuses on technical analysis for small- and large-cap stocks, options, futures, commodities and currencies. Roberto studied international business at the Milwaukee School of Engineering, and he spent a year overseas studying business in Lubeck, Germany. His work has appeared on financial outlets including CNBC.com and Forbes.com. You can follow Pedone on Twitter at www.twitter.com/zerosum24 or @zerosum24.