Stock Quotes in this Article: CHDN, CRDC, KTOS, ULTA, RSE

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.

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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.

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

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Kratos Defense & Security Solutions

An aerospace and defense stock that insiders are active in here is Kratos Defense & Security Solutions (KTOS), a specialized national security technology business providing mission critical products, services and solutions for U.S. national security priorities. Insiders are buying this stock into weakness, since shares are off by 17% in the last six months.

Kratos Defense & Security Solutions has a market cap of $282 million and an enterprise value of $887 million. This stock trades at a premium valuation, with a forward price-to-earnings of 499. Its estimated growth rate for this year is 93.4%, and for next year it’s pegged at 106.2%. This not a cash-rich company, since the total cash position on its balance sheet is $49 million and its total debt is $650.60 million.

The CEO just bought 26,627 shares, or about $124,000 worth of stock, at $4.69 per share.

From a technical perspective, KTOS 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 strong for the last month, with shares soaring higher from its low of $4.08 to its high of $5.16 a share. During that move, shares of KTOS have been mostly making higher lows and higher highs, which is bullish technical price action. That move has now pushed KTOS within range of triggering a near-term breakout trade.

If you’re bullish on KTOS, then I would look for long-biased trades as long as this stock is trending above its 50-day at $4.59, and then once it breaks out above some near-term overhead resistance levels at $5.16 to $5.24 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 345,090 shares. If that breakout triggers, then KTOS will set up to re-test or possibly take out its next major overhead resistance levels at $5.97 to $6.19 a share.

Cardica

Another stock that insiders are jumping into here is Cardica (CRDC), which is focused on the design, manufacture and marketing of proprietary automated anastomotic systems used by cardiac surgeons to perform coronary bypass surgery. Insiders are buying this stock into strength, since shares are up 20% so far in 2013.

Cardica has a market cap of $47 million and an enterprise value of $41 million. This stock trades at a premium valuation, with a price-to-sales of 13.14 and a price-to-book of 10.92. Its estimated growth rate for this year is 6.8%, and for next year it’s pegged at 29.3%. This is barely a cash-rich company, since the total cash position on its balance sheet is $6.66 million and its total debt is $2.65 million

A beneficial owner just bought 981,736 shares, or about $1.03 million worth of stock, at $1.05 per share.

From a technical perspective, CRDC is currently trending below both its 50-day and 200-day moving averages, which is bearish. This stock has been trending sideways for the last few weeks, with shares moving between $1.42 on the upside and $1.13 on the downside. A high-volume move above the upper-end of its recent range could trigger a near-term breakout trade for shares of CRDC.

If you’re in the bull camp on CRDC, then look for long-biased as long as this stock is trending above some key near-term support levels at $1.21 to $1.13 and then once it breaks out above some near-term overhead resistance levels at $1.35 to $1.45 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 86,393 shares. If that breakout triggers, then CRDC will set up to re-test or possibly take out its next major overhead resistance levels at $1.62 to $1.83 a share. Any high-volume move above $1.83 could then send shares of CRDC above $2 a share.

Churchill Downs

A recreational activities stock that insiders are buying up a large amount of shares in is Churchill Downs (CHDN), a multi-jurisdictional owner and operator of pari-mutuel wagering properties and businesses. Insiders are buying this stock into modest strength, since shares are up 5.9% so far in 2013.

Churchill Downs has a market cap of $1.2 billion and an enterprise value of $1.3 billion. This stock trades at a fair valuation, with a trailing price-to-earnings of 21.10 and a forward price-to-earnings of 17.17. Its estimated growth rate for this year is 17.4%, and for next year it’s pegged at 12.3%. This is not a cash-rich company, since the total cash position on its balance sheet is $37.18 million and its total debt is $215.76 million.

A director just bought 16,573 shares, or about $1.10 million worth of stock, at $66.90 to $66.98 per share.

From a technical perspective, CHDN is currently trending above both its 50-day and 200-day moving averages, which is bullish. This stock has been uptrending for the last month and change, with shares moving higher from its low of $63.61 to its recent high of $70.73 a share. During that uptrend, shares of CHDN have been mostly making higher lows and higher highs, which is bullish technical price action. That move has now pushed shares of CHDN within range of triggering a near-term breakout trade.

If you’re bullish on CHDN, then look for long-biased trades as long as this stock is trending above $69 to $68, and then once it breaks out above its 52-week high of $70.73 a share with high volume. Look for a sustained move or close above $70.73 a share with volume that hits near or above its three-month average action of 53,648 shares. If that breakout triggers soon, then CHDN will set up to enter new 52-week-high territory, which is bullish technical price action. Some possible upside targets off that breakout are $75 to $80 a share.

Ulta Salon Cosmetics & Fragrances

A specialty retailer that insiders are buying a decent amount of stock in is Ulta Salon Cosmetics & Fragrances (ULTA), a beauty retailer that provides one-stop shopping for mass and salon products and salon services in the U.S. Insiders are buying this stock into notable weakness, since shares are off by 18% so far in 2013.

Ulta Salon Cosmetics & Fragrances has a market cap of $5.12 billion and an enterprise value $4.63 billion. This stock trades at a reasonable valuation, with a tailing price-to-earnings of 29.88 and a forward price-to-earnings of 19.25. Its estimated growth rate for this year is 23.5%, and for next year it’s pegged at 25.7%. This is a cash-rich company, since the total cash position on its balance sheet is $320.48 million and its total debt is zero.

A director just bought 10,000 shares, or about $754,000 worth of stock, at $75.44 per share.

From a technical perspective, ULTA is currently trending below both its 50-day and 200-day moving averages, which is bearish. This stock recently gapped down from over $89 to $72.51 a share with heavy downside volume. Following that move, shares of ULTA have started to rebound strongly and fill some of that gap above its gap down day high of $76.93 a share.

Traders should now look for long-biased trades in ULTA as long as it’s trending above $76.93 a share with strong upside volume flows. I would consider any upside volume day that registers near or above its three-month average action of 1.37 million shares as bullish. If ULTA can maintain that trend, then this stock could fill much more of that previous gap down zone that started at $89.

Rouse Properties

One more stock to consider is real estate investment trust Rouse Properties (RSE), which owns and manages regional malls in the U.S. Insiders are buying this stock into notable strength, since shares are up 24% during the last six months.

Rouse Properties has a market cap of $886 million and an enterprise value of $2.13 billion. This stock trades at a cheap valuation, with a price-to-sales of 3.80 and a price-to-book of 1.67. This is not a cash-rich company, since the total cash position on its balance sheet is $8.09 million and its total debt is $1.22 billion.

The CEO just bought 15,000 shares, or about $252,000 worth of stock, at $16.86 per share.

From a technical perspective, RSE is currently trending above both its 50-day and 200-day moving averages, which is bullish. This stock recently broke out above its 50-day moving average of $17.41 a share and above some near-term overhead resistance at $17.52 a share with heavy upside volume. That move is quickly pushing shares of RSE within range of triggering another near-term breakout trade.

If you’re bullish on RSE, then look for long-biased as long as this stock is trending above its 50-day moving average of $17.41, and then once it breaks out above some near-term overhead resistance levels at $18 to $18.78 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 224,741 shares. If that breakout hits soon, then RSE will set up to enter new 52-week-high and all-time-high territory, which is bullish technical price action. Some possible upside targets off that breakout are $20 to $23 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 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 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.