Stock Quotes in this Article: HPQ, MASI, REN, ZOLT, P

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.

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.

    Hewlett-Packard

    One computer hardware player that insiders are snapping up a gigantic amount of stock in is Hewlett-Packard (HPQ). This is a provider of products, technologies, software, solutions and services to individual consumers, small- and medium-sized businesses and large enterprises, including customers in the government and the health and education sectors. Insiders are buying this stock into weakness since shares are off around 13% so far in 2012.

    Hewlett-Packard has a market cap of $43 billion and an enterprise value of $64 billion. This stock trades at an extremely cheap valuation, with a trailing price-to-earnings of 8.61 forward price-to-earnings of 5.01. Its estimated growth rate for this year is -16.6%, and for next year it’s pegged at 8.6%. This is not a cash-rich company, since the total cash position on its balance sheet is $8.31 billion and its total debt is a whopping $30.08 billion.

    A director just bought 5,051,265 shares, or around $112.15 million worth of stock, at $21.67 per share. This same director also just bought 13,148,735 shares, or around $295.43 million worth of stock, at $22.02 to $22.62 per share.

    From a technical perspective, HPQ 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 past three months, with shares dropping from a high of $29.85 to a recent low of $20.57 a share. During that move lower, shares of HPQ have been making mostly lower highs and lower lows, which is bearish technical price action. That said, HPQ has recently found some buying interest at around $20.57 to $20.87 a share.

    If you’re bullish on HPQ, then I would look for long-biased trades once this stock triggers a break out above some near-term overhead resistance at $22.66, and then above its 50-day moving average of $23.39 a share with high volume. Look for volume on that move that’s near or above its three-month average action of 20,424,000 shares. If we get that move, then look for HPQ to re-test its 200-day moving average of $25.20 a share. I would increase my bullish outlook on HPQ if it then closed above its 200-day and maintained a trend above that level.

    I would simply avoid HPQ or look for short-biased trades if it fails to trigger that breakout and then drops below that near-term support at $20.87-to-$20.57 a share with high volume. A high-volume move below those levels would setup HPQ to enter new 52-week low territory, which would be bearish price action.

    Pandora Media

    Another name that insiders are loading up in here is Pandora Media (P). This company provides Internet radio services in the U.S. Pandora allows listeners to create up to 100 personalized stations to access unlimited hours of free music and comedy, as well as offers a paid subscription service to listeners. Insiders are buying this stock into some modest strength since shares are up over 6% so far in 2012.

    Pandora Media has a market cap of $1.75 billion and an enterprise value of $1.62 billion. This stock trades at a premium valuation, with a forward price-to-earnings of 212. Its estimated growth rate for this year is -450%, and for next year it’s pegged at 145%. This is a cash-rich company, since the total cash position on its balance sheet is $80.59 million and its total debt is zero.

    A director just bought 45,000 shares, or $470,000 worth of stock, at $10.45 per share.

    From a technical perspective, P is currently trading above its 50-day moving average and below its 200-day moving average, which is natural trendwise. This stock has been uptrending for the last two months, with shares soaring from a low of $7.83 to a recent high of $12.30 a share. During that move, shares of P have been consistently making higher highs and higher lows, which is bullish technical price action. This move has now pushed the stock within range of triggering a near-term breakout trade.

    If you’re in the bull camp on P, then I would look for long-biased trades once it triggers a near-term break out above its 200-day moving average of $11.62, and then above some resistance at $12.30 a share with high-volume. Look for volume on that move that’s near or above its three-month average action of 3,606,560 shares. If we get that move, then P could easily re-test its March high of $15.25 a share. Keep in mind that this stock can also be bought off any weakness as long as it holds near its 50-day moving average of $9.57 a share.

    On the flipside, I would avoid P or look for short-biased trades if this stock fails to trigger that near-term breakout, and then drops back below its 50-day moving average of $9.57 with heavy volume.

    Resolute Energy

    One oil and gas operations player that insiders are doing some large buying in is Resolute Energy (REN). This company is engaged develops oil and gas properties located in Utah, Wyoming, North Dakota and Texas. Insiders are buying this stock into some notable weakness here since shares are off by 16% so far in 2012.

    Resolute Energy has a market cap of $531 million. This stock trades at a reasonable valuation, with a trailing price-to-earnings of 12.68 and a forward price-to-earnings of 27.12. Its estimated growth rate for this year is -52.2%, and for next year it’s pegged at 50%. This is far from a cash-rich company, since the total cash position on its balance sheet is $687,000 and its total debt is $188 million.

    A beneficial owner just bought 557,000 shares, or around $4.77 million worth of stock, at $8.41 to $8.62 per share.

    From a technical perspective, REN is currently trading below both its 50-day and 200-day moving averages, which is bearish. This stock has been downtrending badly for the past three months, with shares dropping from a high of $12.12 to a recent low of $8.09 a share. During that fall, shares of REN have consistently made lower highs and lower lows, which is bearish technical price action. That said, the stock just formed a near-term double bottom after buyers stepped in around $8.09 to $8.12 a share.

    If you‘re bullish on REN, I would now be looking for long-biased trades if this stock manages to trigger a near-term breakout above some resistance at $8.73-to-$8.88 a share with high volume. Look for volume on that move that’s near or above its three-month average action of 709,000 shares. If we get that move, then REN can easily hit its 50-day moving average of $9.84 a share and possibly tag its 200-day at $11.42 a share.

    At last check, REN has started to move above those levels today since shares have hit an intraday high of $9 a share. Traders should now look for REN to maintain a trend above $8.73 to $8.88 with strong upside volume flows. On the flipside, I would avoid this stock or look for short-biased trades if the breakout doesn’t hold, and then it takes out those support levels at $8.09 to $8.12 a share with heavy volume.

    Zoltek

    Another name that insiders are snapping up a decent amount of stock in is industrial electrical equipment player Zoltek (ZOLT). This company, through its subsidiaries, develops, manufactures and markets carbon fibers and technical fibers primarily in Europe, the U.S. and Asia. Insiders are loading up on this stock into some into some modest strength since shares are up over 12% so far in 2012.

    Zoltek has a market cap of $292 million and an enterprise value of $278 million. This stock trades at a cheap valuation, with a trailing price-to-earnings of 18.97 and a forward price-to-earnings of 12.69. Its estimated growth rate for the next quarter is 14.3%, and for this year it’s pegged at 770%. This is not a cash-rich company, since the total cash position on its balance sheet is $9.85 million and its total debt is $10 million.

    The CEO and chairman of the board just bought 45,195 shares, or around $352,000 worth of stock, at $7.73 per share.

    From a technical perspective, ZOLT is currently trading below both its 50-day and 200-day moving averages, which is bearish. This stock has been under the control of the bears for the last four months, with shares plunging from a high of $15.01 to a recent low of $7.34 a share. During that move lower, shares of ZOLT have been consistently making lower highs and lower lows, which is bearish technical price action. That said, the stock has started to bounce the last few weeks and could be setting up to reverse that trend.

    If you’re in the bull camp on ZOLT, I would look for long-biased trades if this stock can manage to trigger a break out above some near-term overhead resistance at $8.47, and then above its 200-day moving average of $8.89 a share with high-volume. Look for volume on that move that’s near or above its three-month average action of 356,317 shares. If we get that move soon, then I would add to any long positions in ZOLT once it closes back above its 50-day moving average of $9.67 a share.

    I would simply avoid ZOLT or look for short-biased trades if it fails to trigger that breakout, and then drops below some near-term support at $7.89 to $7.34 a share with heavy volume. If those key support levels are taken out with volume, then ZOLT could trade back down toward its 52-week low of $5.60 a share.

    Masimo

    The last name to look at with some interesting insider buying is medical equipment and supplies player Masimo (MASI). This is a global medical technology company that develops, manufactures and markets noninvasive patient monitoring products. Insiders are buying this stock into modest strength since shares are up just over 4% so far in 2012.

    Masimo has a market cap of $1.12 billion and an enterprise value of $982 million. This stock trades at a reasonable valuation, with a trailing price-to-earnings of 19.22 and a forward price-to-earnings of 14.7. Its estimated growth rate for this year is 7.6%, and for next year it’s pegged at 17.7%. This is a cash-rich company, since the total cash position on its balance sheet is $128.85 million and its total debt is just $110,000.

    The CEO and chairman of the board just bought 50,000 shares, or about $923,000 worth of stock, at $18.47 per share.

    From a technical perspective, MASI is currently trading below its 50-day and 200-day moving averages, which is bearish. This stock has been downtrending for the last two months, with shares dropping from a high of $24.28 to a recent low of $18.20 a share. During that move, shares of MASI have been mostly making lower highs and lower lows, which is bearish technical price action. That said, the stock has started to rebound during the past week, and it now looks ready to trigger a breakout trade.

    If you’re bullish on MASI, then I would look for long-biased trades once this stock breaks out above some near-term overhead resistance at $19.93 a share with high-volume. Look for volume that’s near or above its three-month average action of 475,591 shares. If we get that move, then I would look to add to any long positions once MASI takes out its 50-day at $21.06 and its 200-day at $21.23 with volume. Target a spike back toward its next significant overhead resistance level at $22.62 to $24.28 a share.

    I would simply avoid MASI or look for short-biased trades if it fails to trigger that breakout and then drops back below that major near-term support at $18.20 a share with high volume. If we get that action, then MASI could setup to move back below its 52-week low of $17.62 a share.

    To see more stocks with notable insider buying like China Biologic Products (CBPO), Ecolab (ECL) and Yahoo! (YHOO), check out the Stocks With Big Insider Buying portfolio on Stockpickr.

     

    -- Written by Roberto Pedone in Winderemere, Fla.

     

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    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.