Stock Quotes in this Article: ATSG, ECL, HOGS, LGND, MHGC, MWW, QNST, RCL

WINDERMERE, Fla. (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.

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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, 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 where insiders have been doing some big buying in per SEC filings.

    Ecolab

    One stock with a huge amount of insider buying is Ecolab (ECL). This company develops and markets products and services for the hospitality, foodservice, health care and industrial markets. Ecolab provides cleaning and sanitizing products and programs, as well as pest elimination, maintenance and repair services primarily to customers in the food and beverage processing, hospitality, healthcare, government and education, retail, textile care, commercial facilities management and vehicle wash sectors. This stock hasn’t done much so far in 2011 with shares up by only around 5%.

    This company has a market cap of $12.3 billion and an enterprise value of $13.2 billion. This stock currently trades at a reasonable valuation, since their trailing price-to-earnings is 23 and their forward price-to-earnings is 18. Eclolab’s estimated growth rate for this year is 13.9% and for next year it’s pegged at 13.8%. This is not a cash-rich company since they have $1.11 billion in total debt and just $163 million in total cash.

    Beneficial owner Bill Gates, through his investment firm Cascade Investment, just bought 3.9 million shares, or $189.6 million worth of stock, between $48.44 and $50.21 per share. This recent purchase by Gates now makes him the largest shareholder in Ecolab, since it added significantly to his previous holdings. Cascade Investment now holds 4.4 million shares of Ecolab worth around $1.1 billion.

    From a technical standpoint, this stock is currently trading above both its 50-day and 200-day moving averages, which is bullish. This stock recently formed a perfect double bottom chart pattern at around $44 a share and since then has bounced all the way up to its current price of just over $53 a share. A lot of that bounce was due to Gate’s buying which started on August 23.

    If you’re looking to buy this stock, I would not chase this off the Gates news. The stock has just made a big run, so it’s better strategy to wait for a significant pullback and look to add shares on weakness. Look for a pullback toward the 200-day moving average of $50.64 as a potential entry point.

    Royal Caribbean Cruises

    One name in the hotel, resort and cruise line sector where key insiders have been snapping up a large amount of stock in is Royal Caribbean Cruises (RCL). This company operates in the cruise vacation industry worldwide in approximately 420 destinations. Insiders are clearly finding some deep value here since they are buying into a stock that’s down over 40% so far this year.

    Royal Caribbean Cruises has a market cap of $5.6 billion and an enterprise value of $13.66 billion. This stock trades at a very reasonable valuation, since its trailing price-to-earnings is 9.7 and its forward price-to-earnings is 7.5. Their estimated growth rate for this year is 35.2% and for next year it’s pegged at 20.1%. This is far from a cash-rich company, since their total cash position is just over $551 million and their total debt is a whopping $8.6 billion.
    The CEO and chairman of the board just bought 66,000 shares, or $1,499,533 worth of stock, at $22.72 per share.

    From a technical standpoint, this stock is trading significantly below both its 50-day and 200-day moving averages, which is bearish. The stock also recently formed a triple top chart pattern at around $64 a share. This stock has been stuck in a nasty downtrend since the start of the year with shares making lower highs and mostly lower lows. That said, upside volume has been picking up recently as the stock has found some buying interest at around $22.27 to $23.41 a share.

    If you want to buy this stock, then I would look to get long once it trades above some near-term overhead resistance at $26.62 a share on strong volume. I would then add to any long position if it trades above its 50-day moving average of $31.19 a share on solid volume. Look for volume on either move that’s tracking in close to or greater than its three-month average action of 3.4 million shares.

    One could also be a buyer of this stock on any pullback as long as it doesn’t trade below $23.40 a share in the near-term. The strategy here would be to anticipate the breakout over $26.62 with a stop a few percentage points below your entry.

    Monster Worldwide

    One name in the business services complex where key insiders have been doing some notable buying in is Monster Worldwide (MWW). This company provides global online employment solution. With a presence in approximately 55 countries globally, including key markets in North America, Europe, Asia and Latin America, Monster offers online recruiting solutions. This is another name where insiders are finding some deep value since shares of Monster are down huge by over 55% so far in 2011.

    This company has a market cap of $1.19 billion and an enterprise value of $1.14 billion. This stock is trading at a very high trailing price-to-earnings of 186, but a more reasonable forward price-to-earnings of 12.9. Monster’s estimated growth rate for this year is 714% and for next year it’s pegged at 74%. This company has just a bit more cash on their balance sheet than debt, with $199 million in total cash and around $122 million in total debt.

    The CEO and chairman of the board just bought 50,000 shares, or $408,500 worth of stock, at $8.17 per share.
    From a technical standpoint, this stock is currently trading below both its 50-day and 200-day moving averages, which is bearish. The stock has been stuck in a nasty downtrend for most of 2011 where shares have been making lower highs and lower lows. That downtrend accelerated this month with the stock dropping from over $12 a share to its recent low of $7 a share. Since that slide, the stock has now rebounded back up to over $9.50 a share.

    If you want to buy this stock, I would look to get long on a light volume pullback toward $8.50 to $8.30 a share. Don’t chase the recent spike, let this come in a bit and buy it as long as the stock remains above $8 a share. I would then add to any long position once it trades above its 50-day moving average of $11.48 on strong volume. Look for volume that’s tracking in at close to or greater than its three-month average action of 3.6 million shares.

    Ligand Pharmaceuticals

    One name in the biotechnology and drugs sector where insiders have been very active in is Ligand Pharmaceuticals (LGND). This is a biotechnology company that focuses on drug discovery and early-stage development of pharmaceuticals that address critical unmet medical needs or those that more effective and/or safer than existing therapies. This is a very interesting insider buy since an executive is paying up to own the stock with shares up over 70% so far in 2011.

    This company has a market cap of $301 million and an enterprise value of $317 million. This stock trades at a very rich valuation, since their trailing price-to-earnings is 250 and their forward price-to-earnings is 95. Ligand’s estimated growth rate for this year is 214% and for next year it’s pegged at -78.1%. This company has a bit more debt on their books than cash, since their total cash position is $13.44 million and total debt is $30.11 million.

    A director just bought 61,559 shares, or $805,350 worth of stock, between $12.54 and $14.21 per share. This same director has been steadily buying up shares of Ligand in August that now have totaled over $4 million worth of stock.

    From a technical standpoint, this is in a very strong uptrend with shares trading well above both its 50-day and 200-day moving averages. This stock has been displaying a very bullish pattern for all of this year with shares making higher highs and higher lows. This shows that large traders have been paying up to buy this stock anytime it has pulled back. The stock also recently broke out above some past resistance at $14.80 a share on big volume.

    If you’re looking to buy this stock, I would let this name come in a bit since the relative strength index is over 70 which often times marks an overbought reading on any stock. Let this name pullback toward $14 or possible $13.50 a share before you jump in. If it doesn’t pullback that much, then you could be a buyer as long as it holds above the key breakout level of $14.80.

    Zhongpin

    One final name in the food processing sector where insiders are doing some large buying in is Zhongpin (HOGS). This is a holding company, principally engaged in the meat and food processing and distribution business in the People’s Republic of China. This is another situation where insiders are finding some deep value since the stock is off by over 50% so far in 2011.

    This company has a market cap of $373 million and an enterprise value of $532 million. The stock trades at an extremely cheap valuation, since their trailing price-to-earnings is 4.95 and their forward price-to-earnings is 3.75. Zhongpin’s estimated growth rate for this year is 18.2% and for next year it’s pegged at 26.7%. This is not a cash-rich company, since their total cash position on their balance sheet is $151 million and their total debt is over $327 million.

    An analyst at Chardan Capital Markets recently said that Zhongpin may attract a takeover bid or investments from global food companies that are looking to get a piece of the growing demand for meat in China.

    The CEO and chairman of the board just bought 65,000 shares, or $524,900 worth of stock, between $7.90 and $8.12 per share. The vice president also just bought 40,000 shares, or $323,400 worth of stock, between $7.95 and $8.11 per share.

    From a technical standpoint, this stock recently collapsed from its May high of $17.31 a share to a recent low of $7.70 a share. This stock is now trading below both its 50-day and 200-day moving averages, which is bearish. That said, some buying interest has started to show up around $7.70 to $8 a share in the past few weeks.

    If you’re looking to buy this stock, I would get long once it trades above its 50-day moving average at $9.75 a share on strong volume. Look for volume that’s tracking in close to or greater than its three-month average volume of 1.1 million shares. I would add to any long position once the stock then trades above its next significant overhead resistance levels of $11.12 to $11.77 a share on strong volume.

    To see more stocks with notable insider buying like Air Transport Services Group (ATSG), QuinStreet (QNST) and Morgans Hotel Group (MHGC), check out the Stocks With Big Insider Buying portfolio on Stockpickr.

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    -- 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.