Stock Quotes in this Article: EQY, FRX, PLCE, SONS, TCX

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.

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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.

Forest Laboratories

Insiders are buying up a large amount of stock in Forest Laboratories (FRX), which develops, manufactures and sells branded forms of ethical drug products, most of which require a physician's prescription. Insiders are loading up on this stock into some modest strength, since shares are up over 14% so far in 2012.

Forest Laboratories has a market cap of $9.22 billion and an enterprise value of $6.65 billion. This stock trades at a reasonable valuation, with a trailing price-to-earnings of 12.05 and a forward price-to-earnings of 22.54. Its estimated growth rate for this year is -81.7%, and for next year it’s pegged at 126.5%. This is an extremely cash-rich company, since the total cash position on its balance sheet is $2.5 billion and its total debt is zero.

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Billionaire hedge fund manager and beneficial owner Carl Icahn just bought 1,962,011 shares, or about $67.05 million worth of stock, at $33.97 to $34.35 per share.

From a technical perspective, FRX is currently trading above both its 50-day and 200-day moving averages, which is bullish. Shares of FRX recently sold off from a high of $36.44 to a low of $31.28 with some above average selling volume. Following that low, shares of FRX have started to ramp higher and move back above both its 50-day and 200-day moving averages. That move has now pushed FRX back inside of its uptrend that had been intact before the recent selloff.

If you’re bullish on FRX, then I would look for long-biased trades as long as this stock is trending above its 50-day moving average of $34.40 with strong upside volume flows. I would consider any upside volume day that registers near or above its three-month average volume of 1.9 million shares as bullish. If FRX can maintain that trend, then this stock has a great chance of re-testing and possibly taking out its recent high of $36.44 a share.

On the flipside, I would avoid FRX or look for short-biased trades if this stock fails to hold that trend, and then drops back below some near-term support at $33.50 a share with heavy volume. If we see that action soon, then look for FRX to re-test and possibly take out its 200-day moving average of $32.80 a share.

Sonus Networks

Another stock that insiders are loading up on here is Sonus Networks (SONS), a provider of voice and multimedia infrastructure solutions, including session border control, Voice over Internet Protocol, access and VoIP media gateway solutions for service providers and enterprises. Insiders are buying this stock into weakness, since shares are off by over 20% so far in 2012.

Sonus Networks has a market cap of $515.17 million and an enterprise value of $171.52 million. This stock trades at a reasonable valuation, with a price-to-sales of 1.95 and a price-to-book of 1.28. Its estimated growth rate for this year is -40%, and for next year it’s pegged at 85.7%. This is a cash-rich company, since the total cash position on its balance sheet is $340.85 million and its total debt is zero.

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A beneficial owner just bought 415,919 shares, or about $739,000 worth of stock, at $1.76 to $1.82 per share.

From a technical perspective, SONS is currently trading below both its 50-day and 200-day moving averages, which is bearish. This stock has been stuck in a nasty downtrend for the last six months, with shares dropping from $3 a share to its recent low of $1.56 a share. During that downtrend, shares of SONS have consistently been making lower highs and lower lows, which is bearish technical price action. That said, the stock is now trending close to a near-term breakout trade that could spark a solid move higher.

If you’re in the bull camp on SONS, then I would look for long-biased trades once this stock manages to trigger a near-term breakout trade above its 50-day moving average of $1.89 a share, and then above some more resistance at $1.94 a share with high volume. Look for a sustained move or close above those levels with volume that registers near or above its three-month average action of 1,679,030 shares. If that breakout triggers soon, then SONS will have a great chance of re-testing and possibly taking out its next major overhead resistance levels at $2.23 to $2.45 a share.

I would simply avoid SONS if this stock fails to recapture its 50-day moving average of $1.89 a share. If SONS continue to fail at or near its 50-day, then this stock is likely to continue trending lower.

Tucows

A computer services player that insiders are warming up to here is Tucows (TCX), which is focused on serving the needs of network of resellers by providing services, interfaces, customer service, reseller-oriented technology and design and development processes. Insiders are buying this stock into some decent strength, since shares are up over 50% so far in 2012.

Tucows has a market cap of $52.34 million and an enterprise value of $52.75 million. This stock trades at a cheap valuation, with a trailing price-to-earnings of 8.03 and a forward price-to-earnings of 10.36. Its estimated growth rate for this year is 100%, and for next year it’s pegged at 10%. This is not a cash-rich company, since the total cash position on its balance sheet is $4.51 million and its total debt is $4 million.

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A director just bought 277,935 shares, or about $319,000 worth of stock, at $1.11 per share.

From a technical perspective, TCX is currently above its 200-day moving average and below its 50-day moving average, which is neutral trendwise. This stock plunged in June from $1.72 a share to $1.02 a share. During that move lower, shares of TCX were consistently making lower highs and lower lows, which is bearish technical price action. That said, the stock has now formed a double bottom at around $1.02 to $1 a share, and it’s started to challenge its 50-day moving average of $1.16 a share.

If you‘re bullish on TCX, then I would look for long-biased trades once this stock manages to trigger a near-term breakout trade above a key downtrend line at $1.23 a share with high volume. Look for volume on that move that hits near or above its three-month average action of 291,075 shares. If that breakout triggers soon, then TCX will have a great chance of re-testing and possibly taking out its next major overhead resistance levels at $1.34 to $1.43 a share.

Keep in mind that one could anticipate that breakout and also buy TCX off any weakness as long as it holds $1 a share. If you buy off weakness, then I would add to the position once $1.23 to $1.29 is taken out with volume.

Equity One

Another name that insiders find attractive here is real estate operations player Equity One (EQY), a real estate investment trust, which owns, manages, acquires, develops and redevelops shopping centers located in supply constrained suburban and urban communities. Insiders are loading up on this stock into some decent strength, since shares are up over 25% so far in 2012.

Equity One has a market cap of $2.44 billion and an enterprise value of $3.85 billion. This stock trades at a premium valuation, with a trailing price-to-earnings of 206.50 and a forward price-to-earnings of 18.34. Its estimated growth rate for this year is -1.8%, and for next year it’s pegged at 5.5%. This is not a cash-rich company, since the total cash position on its balance sheet is $31.28 million and its total debt is $1.42 billion.

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A beneficial owner and chairman of the board just bought 500,000 shares, or $10.6 million worth of stock, at $21.20 per share.

From a technical perspective, EQY is currently trading above both its 50-day and 200-day moving averages, which is bullish. This stock has been uptrending strong for the past six months, with shares soaring from a low of $18.20 to a recent high of $22.16 a share. During that uptrend, shares of EQY have been mostly making higher lows and higher highs, which is bullish technical price action. That move has now pushed EQY within range of triggering a near-term breakout trade.

If you’re in the bull camp on EQY, then I would look for long-biased trades as long as this stock is trending above some near-term support at $21.05 a share, and then once it breaks out above some resistance at $22.16 a share with high volume. Look for a sustained move or close above $22.16 with volume that’s near or above its three-month average action of 530,234 shares. If that breakout triggers soon, then look for EQY to head north of $25 a share. Keep in mind that one can buy EQY off weakness and anticipate that move as long as $21.05 holds as support.

On the flipside, I would avoid EQY or look for short-biased trades if it fails to trigger that breakout soon, and then drops below $21.05 a share with heavy volume. A high-volume move below $21.05 could setup EQY to trend back below $20 a share.

Children’s Place Retail

Another stock that insiders are falling in love with is Children’s Place Retail (PLCE), a pure-play children's specialty apparel retailer in North America. Insiders are buying this stock into some decent strength here, since shares are up over 7% so far in 2012.

Children’s Place Retail has a market cap of $1.39 billion and an enterprise value of $1.20 billion. This stock trades at reasonable valuation, with a trailing price-to-earnings of 22.37 and a forward price-to-earnings of 15.01. Its estimated growth rate for this year is 11.6%, and for next year it’s pegged at 16.9%. This is a cash-rich company, since the total cash position on its balance sheet is $158.62 million and its total debt is zero.

The chairman of the board just bought 13,350 shares, or around $748,000 worth of stock, at $56.03 per share.

From a technical perspective, PLCE is currently trading above both its 50-day and 200-day moving averages, which is bullish. This stock recently gapped up large from over $52 a share to around $56 a share with heavy volume. That gap also pushed PLCE into breakout territory, since the stock took out some overhead resistance levels at $52.16 to $53.60 a share. That gap and continued momentum has now pushed PLCE within range of triggering a major breakout trade.

If you’re bullish on PLCE, then I would look for long-biased trades once this stock manages to trigger a breakout trade above some past overhead resistance levels at $57.55 to $57.63 a share with high volume. Look for volume on that move that registers near or above its three-month average action of 458,656 shares. If that breakout triggers soon, then PLCE should easily trend north of $60 a share. One could also anticipate this breakout and buy the stock off any weakness as long as it holds near-term support at $55 to $54 a share.

On the flipside, I would avoid this stock for now or look for short-biased trades if it fails to trigger that breakout soon, and then drops back below some key near-term support levels at $55 to $54 a share with heavy volume. A move below $54 will setup PLCE to re-fill that previous gap and possibly take this stock down towards $52 to $50 a share.

To see more stocks with notable insider buying, including Sirius XM Radio (SIRI), Zipcar (ZIP) and Imax (IMAX), check out the Stocks With Big Insider Buying portfolio on Stockpickr.

-- Written by Roberto Pedone in Winderemere, Fla.

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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.