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5 Stocks Insiders Are Buying Up - 10547 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.
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.
One stock with key insider buying is Office Depot (ODP), which, together with its subsidiaries, supplies office products and services. Its North American Retail division sells an assortment of merchandise, such as general office supplies, computer supplies, business machines and related supplies, and office furniture. It looks like insiders are finding some deep value here since shares of Office Depot are down over 50% so far in 2011.
This company has a market cap of $719 million and an enterprise value of $997 million. This stock currently trades at a rich valuation, since their forward price-to-earnings is 19.7. Office Depot’s estimated growth rate for the next quarter is -77.8%, and for this year it’s -118%. This is far from a cash-rich company, with a total cash position on their balance sheet of $374 million and total debt of over $732 million.
The CEO and chairman of the board just bought 100,000 shares, or $251,590 worth of stock, at about $2.52 per share.
From a technical standpoint, this stock is currently significantly below its 50-day and 200-day moving averages, which is bearish. That said, the stock just formed a double bottom chart pattern after shares were able to find some buying support at around $2.10 to $2.17 a share. It’s possible that the stock has hit a bottom for now since its showing strength today with the stock up 13% at last check. That strength is important to note because it’s coming off the potential double bottom chart pattern.
If you’re looking to buy this stock, I would enter this name on any significant weakness, or I would buy it once it clears the next major overhead resistance levels at $2.76 to $2.85 a share on strong volume. Look for volume that’s tracking close to or greater than its three-month average action of 9.6 million shares. If this stock breaks above its 50-day moving average of $3.25 a share with volume soon, then I think it’s going to make a run at $4 a share in short order.
Keep in mind that this is a heavily shorted stock with 12.1% of the tradable short currently sold short by the bears. If value investors have finally moved in to snap up shares of ODP, then we could see some short covering rallies start to take hold in the coming days and weeks.
Lions Gate Entertainment
Key insiders have bought a huge amount of stock in Lions Gate Entertainment (LGF), a global entertainment company with a diversified presence in motion picture production and distribution, television programming and syndication, home entertainment, family entertainment, digital distribution and new channel platforms. This stock hasn’t done much so far in 2011, with shares up about 8%.
Lions Gate Entertainment has a market cap of $968 million and an enterprise value of $1.62 billion. This stock trades at a reasonable valuation, with a trailing price-to-earnings ratio of 42 and a forward price-to-earnings of 16. Its estimated growth rate for this year is 178% and for next year is pegged at 37.5%. This is far from a cash-rich company, with a total cash position of just over $111 million and total debt of $762 million.
A beneficial owner and director just bought 11,040,493 shares, or about $77. 3 million worth of stock, at $7 per share. This move by the insider was simply a plan where the company has bought back its shares from activist investor Carl Ichan, so this is not an organic insider purchase.
From a technical standpoint, this stock is currently trading above its 50-day and 200-day moving averages, which is bullish. This stock has been in a solid uptrend since June where the shares have been making higher highs and higher lows. It’s also worth noting that during the recent market selloff, shares of LGF were not hit hard like many other stocks in the market, which shows the name has some relative strength.
If you want to buy this stock, then it could be a good time to pick up some shares with a tight stop since the stock is trading near its 50-day moving average of $6.96 a share. That said, the stock has struggled to trade above some past overhead resistance at around $7.50 to $7.80 a share, so your upside might be limited. A better strategy to use with LGF might be to buy this stock only when it pulls back significantly, or to buy it once it finally breaks out above $7.50 to $7.80 on huge volume.
As of the most recently reported period, Lions Gate is a top holding of Carl Icahn's Icahn Capital, comprising 5.3% of the total portfolio. .
A coal stock that key insiders have been buying recently is L&L Energy (LLEN), which, through its subsidiaries, engages in coal mining, clean coal washing, coal coking and coal wholesaling businesses in the People’s Republic of China. L&L Energy’s coal products include washed coal and metallurgical coke used primarily for steel manufacturing. This is a name that insiders are buying up at depressed levels since the stock is off by a whopping 67% so far in 2011.
L&L Energy has a market cap of $108 million and an enterprise value of $111 million. This stock trades at a very cheap trailing price-to-earnings of 2.88. This company has over twice the amount of debt than cash on its balance sheet, with a total cash position of $4.9 million and total debt of $11.2 million.
L&L Energy just announced that it plans to buy 14 metallurgical coal producing mines that could yield about $500 million in revenue. The mines are located in the Guizhou province of China, and they have been approved for 3 million tons of annual coal capacity.
The CEO and chairman of the board recently bought 49,411 shares, or $419,994 worth of stock, at $8.50 per share. This move by the CEO was simply the conversion of a prior loan to the company of $420,000 into LLEN common stock at $8.50 a share. The CEO has converted the stock at a substantial premium to the current market price with shares trading around $3.50.
From a technical standpoint, this stock is currently trading substantially below both its 50-day and 200-day moving averages, which is bearish. This stock has been stuck in a nasty downtrend since December of 2010, with shares almost consistently printing lower highs and lower lows. That said, some buying support has started to move into this name in the past month at around $3 a share.
If you want to buy this stock, I would look to get long on any weakness and simply stop out if it falls below $3 a share on heavy volume. The next major buy will trigger once it clears $3.50 a share on strong volume. Look for volume that’s tracking in close to or greater than its three-month average volume of 492,000 shares.
Keep in mind that this is a heavily shorted stock with over 17.5% of the float currently sold short by the bears. The short-sellers have been right on this trade for some time, so it wouldn’t be out of the question to see sharp short-covering rallies on any good news in the future.
One name in the financial services sector that key insiders have bought a large amount of stock in is Prospect Capital (PSEC), a mezzanine finance and private equity firm that specializes in late venture, middle market, mature, mezzanine, buyouts, recapitalizations, growth capital, development and bridge transactions. Insiders see some value here, with shares of Prospect Capital off by around 18% so far this year.
This company has a market cap of $957 million and an enterprise value of $1.31 billion. This stock trades at a reasonable valuation, with a trailing price-to-earnings of 6.3 and a forward price-to-earnings of 7.6. Prospect’s estimated growth rate for this year is 0.9%, and for next year it’s pegged at 3.6%. This is not a cash-rich company by any means, with a total cash position of just $1.49 million and total debt of $406.70 million. This stock pays out an enormous dividend of $1.22 a share, which equates to a 14.7% dividend yield.
The CEO just bought 263,049 shares, or about $2.3 million worth of stock, between $8.65 and $8.71 per share. This purchase by the CEO was part of a private placement, but the same CEO also made an open market purchase in July of 118,765 shares, or about $1.3 million worth of stock, at $10.79 per share. The company’s COO also recently made an open market purchase of 46,000 shares, or $384,560 worth of stock, at $8.36 per share.
From a technical standpoint, this stock is currently trading below both its 50-day and 200-day moving averages, which is bearish. Since May, this stock has dropped big from its high of $11.92 to a recent low of $7.41 a share. That said, the stock has started to form a basing pattern between $8 a share and $9 a share during the last month, which could be signaling that the downtrend is over for now.
If you’re looking to buy this stock, I would either buy it on any weakness toward $8 or buy it once it breaks out above $9 a share with strong volume. Look for volume that’s tracking in close to or greater than its three-month average volume of 1.9 million shares. I would add to any long positions once it then clears $9.60 and then trades above its 200-day moving average of $10.51 a share. I would simply use a stop below $8 a share since that’s clearly become a major support zone in the past month.
Insiders have also been doing some large buying of VistaPrint (VPRT), an online provider of coordinated portfolios of customized marketing products and services to micro businesses worldwide. This is another situation where insiders are finding some deep value since the stock is off by over 38% so far in 2011.
This company has a market cap of $1.12 billion and an enterprise value of $856 million. This stock trades at a reasonable valuation, with a trailing price-to-earnings of 15.3 and a forward price-to-earnings of 13.4. VistaPrint’s estimated growth rate for this year is -29.1%, but for next year it’s pegged at 27.6%. This is an extremely cash-rich company, with a total cash position on their books of $237 million and total debt of zero.
A beneficial owner just bought 114,000 shares, or $3.3 million worth of stock, at $29.25 to $29.32 per share. This same insider also bought over $1.5 million worth of stock in mid-August at just over $25 per share.
From a technical standpoint, this stock recently collapsed and gapped down from over $40 a share to a recent low of $26.26 a share. That huge gap down was significant because the downside volume increased dramatically. That said, since the start of August shares of VPRT have been forming a basing pattern and trading between a low of $25.70 and a high of just over $30 a share.
If you’re looking to buy this stock, I would get long off any weakness towards the lower end of the range at let’s say around $26 a share. I would use a stop a few percentage points below $25.70 in case this stock once to trend lower. If you prefer to buy strength, then I would buy once this stock clears $30 a share with volume. Look for volume that’s tracking in close to or greater than its three-month average volume of 1 million shares.
I expect a huge-percentage move in this stock once it clears $30 since that’s the high on the stock from the day it gapped down. A move over $30 should mean this name is ready to fill some of that large gap down.
Keep in mind that this is another heavily shorted stock with over 15.8% of the tradable float currently sold short by the bears. I fully expect to see those short-sellers do some covering on a volume move above $30, so keep this name on your radar.
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.