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5 Stocks Insiders Love Right Now - 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 several stocks whose insiders have been doing some big buying per SEC filings.
Insiders are buying up shares of Ardea Biosciences (RDEA), a biotechnology company focused on the development of small-molecule therapeutics for the treatment of serious diseases. Insiders are buying into strength here since this stock is up over 13% so far in 2012.
Ardea Biosciences has a market cap of $510 million and an enterprise value of $410 million. This stock trades at a rich valuation, since its price-to-sales is 23.09 and its price-to-book is 4.84. Its estimated growth rate for this year is -14.8%, and for next year it’s pegged at -4.7%. This is a cash-rich company, with a total cash position on its balance sheet is $122.73 and total debt of just $1.10 million.
A director and beneficial owner just bought 426,470 shares, or $7.24 million worth of stock, at $17 per share. It looks like this purchase was part of a private placement of stock of 8.5 million shares, offered at $17.00 per share.
From a technical perspective, RDEA is currently trading above its 50-day moving average and below its 200-day moving average, which neutral trendwise. This stock recently found some buying support at around $14.35 a share, which is very close to the last major support zone from back in October at $13.79 a share. After seeing interest at $14.35, the stock has soared to a recent high of $20.41 a share. That said, the stock has started to fail and trade lower right around its 200-day moving average of $19.92.
If you’re bullish on RDEA, I would let this stock pull back since it just ran into resistance right around the 200-day. Some potential areas of support are around the 50-day moving average of $17.76 and also $17.30 a share. If those areas don’t hold, then I would look for this stock to trend lower and re-test $15 to $13 a share. Keep in mind that around $15 to $13 a share, this stock has found buying interest a number of times in the last six months.
A stock in the restaurants complex whose insiders are snapping up a ton of shares in is Wendy’s (WEN), a quick-service hamburger company in the U.S. The company, through its subsidiaries, operates as a franchisor of the Wendy's restaurant system. Insiders are buying into modest strength here since the stock is up 6% so far in 2011.
Wendy’s has a market cap of $1.9 billion and an enterprise value of $2.8 billion. This stock trades at a reasonable valuation, with a forward price-to-earnings of 21. Its estimated growth rate for this year is 20%, and for next year it’s pegged at 33.3%. This is not a cash-rich company, since the total cash position on its balance sheet is $488.82 million and its total debt is $1.36 billion.
A beneficial owner just bought 5,250,000 shares, or about $25.2 million worth of stock, at $4.75 to $4.87 per share.
From a technical perspective, WEN is currently trading above its 200-day moving average and just below its 50-day moving average, which is neutral trendwise. This stock recently sold off below both key moving averages on monster volume, and then found buyers at $4.67 a share. After buyers stepped in at 4.67, the stock has rallied back above the 200-day toward its current price of around $5 a share. The upside volume during the past couple of trading sessions (all up days) has been tracking in strong.
If you‘re a bullish on WEN, I would look to be a buyer once it trades back above its 50-day moving average of $5.18 on heavy volume. Look for volume that’s near or well above its three-month average action of 5,009,520 shares. If we get that action soon, then look for WEN to make a run at $5.50 to $5.60 a share, or potentially much higher. I would simply use a mental stop just below the 200-day moving average of $5.02 a share in case the bears come back into the stock.
Bank of America
Insiders are also going long global banking giant Bank of America (BAC). Insiders are buying into some big time strength here since shares are up a whopping 45% so far in 2012.
Bank of America has a market cap of $85 billion and an enterprise value of $172 billion. This stock trades at a reasonable valuation, since its forward price-to-earnings is 7.39. Its estimated growth rate for the next quarter is 120%, and for next year it’s pegged at 54.9%. This is not a cash-rich company, with a total cash position on its balance sheet of $599.63 billion and total debt of $682.35 billion.
A director just bought 50,000 shares, or $369,000 worth of stock, at $7.39 per share. Another director also just bought 28,000 shares, or about $220,000 worth of stock, at $7.70 to $8.09 per share.
From a technical perspective, BAC is currently trading above both its 50-day and 200-day moving averages, which is bullish. This stock hit a recent low of $4.92 a share, and since then it has skyrocketed towards its current price of over $8 a share. That big run has also just pushed BAC back above its 200-day moving average of $8.07 on decent volume. Traders should now look for a breakout trade to trigger once BAC clears some near-term overhead resistance.
If you’re bullish BAC, I would look to be a buyer of this stock once it breaks out above $8.77 on heavy volume. Look for volume on a move over $8.77 that registers near or above its three-month average action of 274,814,000 shares. You can also look to buy this stock off any weakness that takes it back towards $7 a share, with a stop just below that level. Keep in mind that I would prefer BAC to stay about its 200-day to show that the uptrend is strong.
For more on Bank of America, one of the 10 Best-Performing S&P 500 Stocks So Far in 2012, it shows up on recent lists of both 5 Booming Bank Stocks Poised to Fall and Stocks in Bottoming Sectors Primed for a 2012 Bounce.
In the semiconductor complex, insiders are doing some active buying in Broadcom (BRCM), whose products enable the delivery of voice, video, data and multimedia to and throughout the home, the office and the mobile environment. This is another stock that insider are paying up to own since shares have returned over 28% so far in 2012.
Broadcom has a market cap of $20 billion and an enterprise value of $17 billion. This stock trades at a reasonable valuations, with a trailing price-to-earnings of 22.82 and forward price-to-earnings of 12.27. Its estimated growth rate for this year is -4.2%, and for next year it’s pegged at 10.8%. This is an extremely cash-rich company, since the total cash position on its balance sheet is $4.53 billion and its total debt is $1.20 billion.
A director just bought 5,000 shares, or $188,000 worth of stock, at $37.77 per share.
From a technical perspective, BRCM is currently trading above both its 50-day and 200-day moving averages, which is bullish. This stock hit a near-term bottom at $27.59 in late December, and since then it has skyrocketed towards its current price of over $37 a share. This recent run now puts BRCM within range of challenging some breakout levels that are very close to the stock’s current level.
If you’re bullish on BRCM, I would look to buy this stock off any weakness that takes it back towards $35 to $35 a share, and simply use a mental stop just below its 200-day moving average of $33.61 a share. If we don’t get that pullback, then look to buy the breakout once it moves above $38.25 to $38.66 with volume. Look for volume that’s tracking in near or well above its three-month average action of 10,127,700 shares.
Another stock where key insiders are active in is business communication solutions provider ShoreTel (SHOR). This company, together with its subsidiaries, engages in the development and sale of Internet protocol communications systems for enterprises in the U.S. and internationally. This stock is off to a slow start in 2012 with shares off by around 5.9%.
ShoreTel has a market cap of $287 million and an enterprise value of $164 million. This stock trades at a steep valuation, since its forward price-to-earnings is 28.57. Its estimated growth rate for this quarter is -400%, and for this year it’s pegged at -100%. This is a cash-rich company, with a total cash position on its balance sheet of $115.85 million and total debt of zero.
From a technical perspective, SHOR is currently trading below both its 50-day and 200-day moving averages, which is bearish. This stock recently ran into resistance at around $7.28 a share, which happens to near the level it hit resistance at back in September of last year. After finding sellers at $7.28, this stock plunged on monster volume down to a recent low of $5.30 a share.
If you’re bullish on SHOR, I would look to get long this stock once it takes out the 50-day moving average of $6.31 with high-volume. Look for volume that’s near or well above its three-month average volume of 312,421 shares. One could also be a buyer off any weakness as long as that low of $5.30 a share isn’t violated. I like that the upside volume has been strong for the last couple of trading sessions, so look for continued upside if that 50-day gets taken out soon with strong volume.
-- 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.