Stock Quotes in this Article: SGEN, TDG, TGT, KMI, COVS

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.

Seattle Genetics

One biotechnology player that insiders are loading on here is Seattle Genetics (SGEN), which develops and commercializes antibody-based therapies for the treatment of cancer. Insiders are buying this stock into weakness, since shares have traded off by 20% over the last three months.

Seattle Genetics has a market cap of $5 billion and an enterprise value of $4 billion. This stock trades at a premium valuation, with a price-to-sales of 17.6 and a price-to-book of 21.3. Its estimated growth rate for this year is -78.4%, and for next year it's pegged at 25.3%. This is a cash-rich company, since the total cash position on its balance sheet is $355.36 million and its total debt is zero.

A director just bought 546,252 shares, or about $20.84 million worth of stock, at $37.40 to $38.96 per share. The same director also just bought 281,963 shares, or about $9.82 million worth of stock, at $34.05 to $36.04 per share.

From a technical perspective, SGEN is currently trending above its 50-day moving average and just below is 200-day moving average, which is neutral trendwise. This stock has been uptrending for the last few weeks, with shares moving higher from its low of $32.35 to its intraday high of $42.24 a share. During that uptrend, shares of SGEN have been consistently making higher lows and higher highs, which is bullish technical price action. That move has now pushed shares of SGEN within range of triggering a big breakout trade.

If you're bullish on SGEN, then I would look for long-biased trades as long as this stock is trending above $38.50 or above its 50-day at $37.33 and then once breaks out above its 200-day moving average of $42.59 to some more near-term resistance at $42.62 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 1.18 million shares. If that breakout kicks off soon, then SGEN will set up to re-test or possibly take out its next major overhead resistance levels at $47.67 to $50, or even $55 a share.

TransDigm Group

Another stock that insiders are snapping up a large amount of stock in here is TransDigm Group (TDG), which designs, produces and supplies engineered aerospace components for commercial and military aircraft customers in the U.S. Insiders are buying this stock into notable strength, since shares have jumped 21% to the upside so far in 2014.

TransDigm Group has a market cap of $10 billion and an enterprise value of $15 billion. This stock trades at a premium valuation, with a trailing price-to-earnings of 56 and a forward price-to-earnings of 22. Its estimated growth rate for this year is 10.9%, and for next year it's pegged at 13.6%. This is not a cash-rich company, since the total cash position on its balance sheet is $475.69 million and its total debt is $5.74 billion

A director just bought 278,080 shares, or about $53 million worth of stock, at $190.61 per share.

From a technical perspective, TDG is currently trending above both its 50-day and 200-day moving averages, which is bullish. This stock has been uptrending for the last six months, with shares moving higher from its low of $153.10 to its recent 52-week high of $198.29 a share. During that uptrend, shares of TDG have been making mostly higher lows and higher highs, which is bullish technical price action.

If you're in the bull camp on TDG, then I would look for long-biased trades in this stock off a pullback back towards its 50-day moving average of $183.13 a share. This stock is a bit extended here and a pullback back towards its 50-day should make for a lower risk entry point. If that pullback doesn't happen, then look to buy the breakout if TDG clears its 52-week high of $198.29 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 500,686 shares.

Kinder Morgan

One energy player that insiders are in love with here is Kinder Morgan (KMI), which operates as a midstream and energy company in North America. Insiders are buying this stock into decent strength, since shares have moved higher by 10% over the last three months.

Kinder Morgan has a market cap of $35 billion and an enterprise value of $72 billion. This stock trades at a premium valuation, with a trailing price-to-earnings of 30 and a forward price-to-earnings of 23. Its estimated growth rate for this year is 18.3%, and for next year it's pegged at 9.6%. This is not a cash-rich company, since the total cash position on its balance sheet is $635 million and its total debt is $37.30 billion. This stock currently sports a dividend yield of 4.9%.

A director just bought 200,000 shares, or about $6.82 million worth of stock, at $34.15 per share.

From a technical perspective, KMI 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 and change, with shares moving higher from its low of $30.42 to its recent high of $35.39 a share. During that uptrend, shares of KMI have been consistently making higher lows and higher highs, which is bullish technical price action.

If you're bullish on KMI, then I would look for long-biased trades off a pullback back towards its 200-day at $33.60 or its 50-day at $33.12 a share. This stock is a bit over extended here, so a pullback towards those key moving averages will offer a lower risk entry point. If that pullback doesn't occur, then look to buy KMI off a breakout above some key overhead resistance levels at $35.39 to $35.58 a share with high volume. Look for volume on that move that registers near or above its three-month average action of 5.76 million shares.

Covisint

One technology player that insiders are active in here is Covisint (COVS), which provides a cloud engagement platform in the U.S. and internationally. Insiders are buying this stock into huge weakness, since shares are down sharply so far in 2014 by 60%.

Covisint has a market cap of $185 million and an enterprise value of $118 million. This stock trades at reasonable valuation, with a price-to-sales of 1.87 and a price-to-book of 1.79. Its estimated growth rate for this year is 50%, and for next year it's pegged at 96%. This is a cash-rich company, since the total cash position on its balance sheet is $49.54 million and its total debt is zero.

A beneficial owner just bought 1,363,680 shares, or about $5.45 million worth of stock, at $4 per share.

From a technical perspective, COVS is currently trending below both its 50-day and 200-day moving averages, which is bearish. This stock has been downtrending badly for the last month and change, with shares moving lower from its high of $7.34 to its recent low of $3.86 a share. During that downtrend, shares of COVS have been consistently making lower highs and lower lows, which is bearish technical price action. That said, shares of COVS have now started to rebound sharply off that $3.86 low and it's quickly moving within range of triggering a near-term breakout trade.

If you're bullish on COVS, then I would look for long-biased trades as long as this stock is trending above $4.50 or above $4 and then once it breaks out above some near-term overhead resistance at $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 volume of 167,591 shares. If that breakout materializes soon, then COVS will set up to re-test or possibly take out its next major overhead resistance levels at $6 to its 50-day moving average of $6.49 a share.

Target

One final stock with some decent insider buying is Target (TGT), which operates general merchandise stores in the U.S. and Canada. Insiders are buying this stock into notable weakness, since shares have traded lower by 10% so far in 2014.

Target has a market cap of $35 billion and an enterprise value of $49 billion. This stock trades at a reasonable valuation, with a trailing price-to-earnings of 19 and a forward price-to-earnings of 13. Its estimated growth rate for this year is 13.5%, and for next year it's pegged at 17.1%. This is not a cash-rich company, since the total cash position on its balance sheet is $716 million and its total debt is a whopping $14.12 billion. This stock currently sports a dividend yield of 3%.

A director just bought 100,000 shares, or about $625,000 worth of stock, at $56.78 per share.
From a technical perspective, TGT is currently trending below both its 50-day and 200-day moving averages, which is bearish. This stock has been downtrending over the last month and change, with shares moving lower from its high of $62.18 to its recent low of $55.25 a share. During that downtrend, shares of TGT have been mostly making lower highs and lower lows, which is bearish technical price action. That said, shares of TGT have now started to bounce off that $55.25 low and it's starting to trend within range of triggering a near-term breakout trade.

If you're bullish on TGT, then look for long-biased trades as long as this stock is trending above some near-term support at $55.25 or at above previous support at $55.03 and then once it breaks out above some near-term overhead resistance levels at $58.22 to its 50-day at $58.72 and then above more resistance at $59.42 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 5.33 million shares. If that breakout gets underway soon, then TGT will set up to re-test or possibly take out its next major overhead resistance levels at its 200-day moving average of $60.47 to $62.50, or even $63 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.