Stock Quotes in this Article: JAKK, NTWK, POZN, RWC, RH

 DELAFIELD, Wis. (Stockpickr) -- Corporate insiders sell their own companies' stock for a number of reasons.

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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, 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.

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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 five stocks whose insiders have been doing some big buying per SEC filings.

Restoration Hardware

A home furnishings retailer that insiders are buying up a large amount of stock in here is Restoration Hardware (RH), which offers furniture, lighting, textiles, bathware, decor, outdoor and garden, as well as baby and child products. Insiders are buying this stock into big time strength, since shares are up 101% so far in 2013.

Restoration Hardware has a market cap of $2.63 billion and an enterprise value of $2.74 billion. This stock trades at a premium valuation, with a forward price-to-earnings of 36.77. Its estimated growth rate for this year is 45.5%, and for next year it's pegged at 25.2%. This is not a cash-rich company, since the total cash position on its balance sheet is $9.67 million and its total debt is $113.99 million.

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A director just bought 100,000 shares, or about $7 million worth of stock, at $70 per share.

From a technical perspective, RH is currently trending above its 50-day moving average, which is bullish. This stock has been downtrending over the last month, with shares dropping from its high of $77.36 to its recent low of $66 a share with heavy downside volume. Shares of RH have so far held above some near-term support levels at $66 to its 50-day moving average at $64.52 a share during this trend lower.

If you're bullish on RH, then I would look for long-biased trades as long as this stock is trending above some key support levels at $66 or above its 50-day at $64.52 and then once it breaks out above some near-term overhead resistance at $70 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 603,381 shares. If that breakout hits soon, then RH will set up to re-test or possibly take out its 52-week high at $77.36 a share.

 

Pozen

A biotherapeutic player that insiders are active in here is Pozen (POZN), which focuses on migraine treatment through the use of triptans and different delivery mechanisms. Insiders are buying this stock into notable strength, since shares are up 13% so far in 2013.

Pozen has a market cap of $172 million and an enterprise value of $87 million. This stock trades at a reasonable valuation, with a forward price-to-earnings of 25.73. Its estimated growth rate for this year is 69%, and for next year it's pegged at 184.6%. This is a cash-rich company, since the total cash position on its balance sheet is $80.19 million and its total debt is zero.

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A beneficial owner just bought 90,000 shares, or about $472,000 worth of stock, at $5.25 per share.

From a technical perspective, POZN is currently trending above both its 50-day and 200-day moving averages, which is bullish. This stock has been uptrending strong for the last three months, with shares moving higher from its low of $4.26 to its intraday of $5.75 a share. During that move, shares of POZN have been mostly making higher lows and higher highs, which is bullish technical price action. That move has now pushed shares of POZN within range of triggering a near-term breakout trade.

If you're in the bull camp on POZN, then look for long-biased trades as long as this stock is trending above its 50-day at $5.19 and then once it breaks out above some near-term overhead resistance levels at $5.64 to $6.11 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 205,580 shares. If that breakout triggers soon, then POZN will set up to re-test or possibly take out its 52-week high at $6.95 a share. Any high-volume move above that level will then put its next major resistance levels at $7.55 to $8.12 into range for shares of POZN.

Jakks Pacific

A cyclical consumer goods player that insiders are loading up on here is Jakks Pacific (JAKK), a producer and marketer of children's toys and other consumer products. Insiders are buying this stock into extreme weakness, since shares are off by 49% so far in 2013.

Jakks Pacific has a market cap of $137 million and an enterprise value of $172 million. This stock trades at a premium valuation, with a forward price-to-earnings of 52.42. Its estimated growth rate for this year is -402.6%, and for next year it's pegged at 106.1%. This is not a cash-rich company, since the total cash position on its balance sheet is $69.94 million and its total debt is $96.28 million. This stock currently sports a dividend yield of 4%.

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A beneficial owner just bought 1.3 million shares, or about $9.9 million worth of stock, at $7.41 per share.

From a technical perspective, JAKK is currently trending below both its 50-day and 200-day moving averages, which is bearish. This stock recently gapped down big from $11.75 to below $7 a share with heavy downside volume. Following that gap down, shares of JAKK has gone on to print a new 52-week low at $6.25 a share.

If you're bullish on JAKK, then look for long-biased trades as long as this stock is trending above its 52-week low of $6.25 and then once it breaks out above some near-term overhead resistance at $7 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 434,117 shares. If that breakout triggers soon, then JAKK will set up to re-test or possibly take out its gap down day high of near $9 a share.

NetSol Technologies

A technology stock that insiders are jumping into here is NetSol Technologies (NTWK), which designs, develops, markets and exports proprietary software products to customers in the automobile finance and leasing, banking, healthcare, and financial services industries worldwide. Insiders are buying this stock into extreme strength, since shares are up a whopping 77% so far in 2013.

NetSol Technologies has a market cap of $88 million and an enterprise value of $89 million. This stock trades at a cheap valuation, with a trailing price-to-earnings of 12.62 and a forward price-to-earnings of 9.18. Its estimated growth rate for this year is 112.8%, and for next year it's pegged at 39.8%. This is barley a cash-rich company, since the total cash position on its balance sheet is $7.71 million and its total debt is $7.17 million.

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The CEO just bought 7,500 shares, or about $76,000 worth of stock, at $10.25 per share.

From a technical perspective, NTWK is currently trending above both its 50-day and 200-day moving averages, which is bullish. This stock has been uptrending for the last two months and change, with shares moving higher from its low of $8.73 to its recent high of $11.05 a share. During that move, shares of NTWK have been consistently making higher lows and higher highs, which is bullish technical price action. That move has now pushed shares of NTWK within range of triggering a near-term breakout trade.

If you're bullish on NTWK, then look for long-biased trades as long as this stock is trending some key near-term support levels at its 50-day of $10.21 or above $9.50 and then once it breaks out above some near-term overhead resistance levels at $11 to $11.05 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 volume of 191,394 shares. If that breakout hits soon, then NTWK will set up to re-test or possibly take out its next major overhead resistance levels at $12.55 to $12.87 a share. Any high-volume move above those levels will then put its next major overhead resistance levels at $13.60 to $14.01 into range for shares of NTWK.

Relm Wireless

One more stock with some decent insider buying is Relm Wireless (RWC), which is engaged in the designing, manufacturing and marketing wireless communications products consisting of two-way land mobile radios, repeaters, base stations and related components and subsystems. Insiders are buying this stock into big time strength, since shares are up 101% so far in 2013.

Relm Wireless has a market cap of $46 million and an enterprise value of $41 million. This stock trades at a fair valuation, with a trailing price-to-earnings of 16.16. Its estimated growth rate for the current quarter is -33.3%, and for this year its 33.3%. This is a cash-rich company, since the total cash position on its balance sheet is $4.52 million and its total debt is zero.

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A beneficial owner just bought 57,061 shares, or about $190,000 worth of stock, at $3.29 per share. That same beneficial owner also just bought 64,657 shares, or about $199,000 worth of stock, at $3 to $3.17 per share.

From a technical perspective, RWC is currently trending above both its 50-day and 200-day moving averages, which is bullish. This stock has been uptrending strong for the last two months, with shares moving higher from its low of $2.62 to its intraday high of $3.48 a share. During that move, shares of RWC have been consistently making higher lows and higher highs, which is bullish technical price action. That move has now pushed shares of RWC within range of triggering a major breakout trade.

If you're bullish on RWC, then look for long-biased trades as long as this stock is trending above its 50-day at $3.09 or above more support at $2.80 and then once it breaks out above its 52-week high at $3.74 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 69,842 shares. If that breakout triggers soon, then RWC will set up to enter new 52-week-high territory, which is bullish technical price action. Some possible upside targets off that breakout are $4.50 to $5 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.