Stock Quotes in this Article: ELX, GEO, OCR, PKT, SONS

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, it's 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 five stocks whose insiders have been doing some big buying per SEC filings.

GEO Group

One REIT player that insiders are loading up on here is GEO Group (GEO), which provides government-outsourced services specializing in the management of correctional, detention, and re-entry facilities, and the provision of community based services and youth services in the U.S., Australia, South Africa, the U.K., and Canada. Insiders are buying this stock into modest strength, since shares are up by 6.9% so far in 2014.

GEO Group has a market cap of $2.4 billion and an enterprise value of $3.9 billion. This stock trades at a premium valuation, with a trailing price-to-earnings of 20.6 and a forward price-to-earnings of 17.7. Its estimated growth rate for this year is 1.7%, and for next year it's pegged at 6.6%. This is not a cash-rich company, since the total cash position on its balance sheet is $38.06 million and its total debt is $1.58 billion. This stock currently sports a dividend yield of 6.7%.

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The CEO just bought 46,901 shares, or about $1.58 million worth of stock, at $33.79 per share.

From a technical perspective, GEO is currently trending above both its 50-day and 200-day moving averages, which is bullish. This stock has been uptrending over the last three months, with shares moving higher from its low of $30.31 to its intraday high of $34.64 a share. During that move, shares of GEO have been consistently making higher lows and higher highs, which is bullish technical price action. That move has now pushed shares of GEO within range of triggering a near-term breakout trade.

If you're bullish on GEO, then I would look for long-biased trades as long as this stock is trending above its 200-day moving average of $32.39 and then once breaks out above some near-term overhead resistance levels at $34.64 to $36.99 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 549,984 shares. If that breakout hits soon, then GEO will set up to re-test or possibly take out its next major overhead resistance level at its 52-week high of $39.35 a share.

Emulex

Another stock that insiders are jumping into here is Emulex (ELX), which provides network connectivity, monitoring and management products for networks that support enterprise, cloud, government and telecommunications worldwide. Insiders are buying this stock into massive weakness, since shares are down sharply by 32% so far in 2014.

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Emulex has a market cap of $391 million and an enterprise value of $314 million. This stock trades at a premium valuation, with a forward price-to-earnings of 10.4. Its estimated growth rate for this year is -26%, and for next year it's pegged at -14.8%. This is a cash-rich company, since the total cash position on its balance sheet is $209.30 million and its total debt is $145.06 million.

A director just bought 200,000 shares, or about $940,000 worth of stock, at $4.70 per share.

From a technical perspective, ELX is currently trending below both its 50-day and 200-day moving averages, which is bearish. This stock recently gapped down sharply lower from over $7 a share to below $5 a share with heavy downside volume. Following that move, shares of ELX went on to make a new low at $4.51 a share. That said, shares of ELX are now starting to rebound off that $4.51 low and off oversold levels, since its current relative strength index reading is 21.98.

If you're in the bull camp on ELX, then I would look for long-biased trades as long as this stock is trending above that recent low of $4.51 and then once it breaks out above Wednesday's intraday high of $5 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 1.22 million shares. If that move starts soon, then ELX will set up to re-test or possibly take out its next major overhead resistance level at its gap-down-day high of $5.66 a share. Any high-volume move above $5.66 will then give ELX a chance to re-fill some of that previous gap-down-day zone.

Procera Networks

One technology player that insiders are in love with here is Procera Networks (PKT), which provides intelligent policy enforcement solutions based on deep packet inspection technology that enable mobile and broadband network operators and entities to manage and control their private networks. Insiders are buying this stock into major weakness, since shares are off sharply so far in 2014 by 41%.

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Procera Networks has a market cap of $179 million and an enterprise value of $70 million. This stock trades at a reasonable valuation, with a forward price-to-earnings of 28.6. Its estimated growth rate for this year is 94.4%, and for next year it's pegged at 3,200%. This is a cash-rich company, since the total cash position on its balance sheet is $106.31 million and its total debt is zero.

A director just bought 50,000 shares, or about $434,000 worth of stock, at $8.68 per share.

From a technical perspective, PKT is currently trending below both its 50-day and 200-day moving averages, which is bearish. This stock has been dowtrending badly over the last five months, with shares moving lower from its high of $15.43 to its recent low of $8.33 a share. During that move, shares of PKT have been consistently making lower highs and lower lows, which is bearish technical price action.

If you're bullish on PKT, then I would look for long-biased trades as long as this stock is trending above its recent low at $8.33 a share and then once it breaks out above some near-term overhead resistance levels at $9.49 to $9.89 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 326,939 shares. If that breakout triggers soon, then PKT will set up to re-test or possibly take out its next major overhead resistance levels at its 50-day moving average of $10.35 to more near-term overhead resistance at $10.81 a share.

Omnicare

One health care player that insiders are in love with here is Omnicare (OCR), which operates as a health care services company that specializes in the management of pharmaceutical care in the U.S. and Canada. Insiders are buying this stock into modest strength, since shares are up 7.5% so far in 2014.

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Omnicare has a market cap of $5.9 billion and an enterprise value of $7.8 billion. This stock trades at fair valuation, with a forward price-to-earnings of 14.5. Its estimated growth rate for this year is 7.6%, and for next year it's pegged at 11.4%. This is not a cash-rich company, since the total cash position on its balance sheet is $346.99 million and its total debt is $2.28 billion. This stock currently sports a dividend yield of 1.3%.

The president just bought 20,000 shares, or about $1.16 million worth of stock, at $58.49 per share.

From a technical perspective, OCR is currently trending above both its 50-day and 200-day moving averages, which is bullish. This stock is bouncing higher today right above its 50-day moving average of $58.82 a share. That bounce is starting to push shares of OCR within range of triggering a near-term breakout trade. That trade will hit if OCR manages to take out some near-term overhead resistance levels at $60.69 to $60.85 a share and then once it takes out more near-term overhead resistance at $61.73 a share with high volume.

If you're bullish on OCR, then I would look for long-biased trades as long as this stock is trending above its 50-day at $58.82 or above its 200-day at $57.62 and then once it takes out those breakout levels 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 1.39 million shares. If that breakout kicks off soon, then OCR will set up to re-test or possibly take out its 52-week high at $64.87 a share.

Sonus Networks

One final stock with some large insider buying is Sonus Networks (SONS), which provides networked solutions for communications service providers and enterprises. Insiders are buying this stock into modest strength, since shares are up 7% over the last six months.

Sonus Networks has a market cap of $787 million and an enterprise value of $631 million. This stock trades at a reasonable valuation, with a forward price-to-earnings of 26. Its estimated growth rate for this year is 150%, and for next year it's pegged at 140%. This is a cash-rich company, since the total cash position on its balance sheet is $159.22 million and its total debt is just $2.38 million.

The CEO just bought 1,000,000 shares, or about $2.98 million worth of stock, at $2.98 per share.
From a technical perspective, SONS is currently trending below both its 50-day and 200-day moving averages, which is bearish. This stock has been downtrending over the last two months, with shares moving lower from its high of $3.98 to its recent low of $2.88 a share. During that downtrend, shares of SONS have been making mostly lower highs and lower lows, which is bearish technical price action. That said, shares of SONS have now started to bounce off that $2.88 low and it's moving within range of triggering a near-term breakout trade.

If you're bullish on SONS, then look for long-biased trades as long as this stock is trending above some near-term support at $3.11 and then once it breaks out above its 200-day moving average of $3.27 to its 50-day moving average of $3.41 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 2.78 million shares. If that breakout triggers soon, then SONS will set up to re-test or possibly take out its next major overhead resistance levels at $3.60 to $3.80, or possibly even its 52-week high at $3.98 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.