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6 Stocks With Big Insider Buying - 21378 views
WINDERMERE, Fla. (Stockpickr) -- Corporate insiders sell their own companies’ stock for a variety of reasons. They might need the money for a big personal purchase such as a house or to fund a child’s wedding. Sometimes they sell as part of a planned selling program that they have put in place for diversification purposes. Other times they sell because they think their stock is fully valued. Some dump their own stock because they’re worried about the state of the economy and think shares could go down significantly.
But they only buy their own shares for one reason: because they think the stock will go up substantially.
The key word in that last statement is “think.” Just because a corporate insider thinks his stock is going to go up, that doesn’t mean it will. Insiders can have all the conviction in the world that their stock is a bargain, but if the market doesn’t agree with them, it won’t matter.
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Recently, we’ve had a number of companies whose corporate insiders were buying large amounts of stock. These insiders might be buying because they like the future prospects for their company. They could be loading up because the recent market volatility has created an opportunity for them to get in on the cheap. Some could be making a long-term bet by buying up their shares right now.
Here’s a look at a number of companies whose insiders have been loading up on their own stock recently per SEC filings.
If there was an award given out to an insider for loving to average down on a stock, it would go to Kevin Douglas, an under-the-radar entrepreneur-turned-investor and beneficial owner of American Superconductor (AMSC).
American Semiconductor is a power technology company offering a range of technologies and solutions spanning the electric power infrastructure from generation to delivery to end use. This stock has been absolutely annihilated this year, with shares down over 53%. It has a market cap of $677.86 million and trades at a forward price-to-earnings of 19.93. The company is cash-rich, with around $242.93 million of cash on its balance sheet and zero debt.
Last week, shares of American Superconductor plunged 45% after its largest customer refused to accept contracted shipments and the stock was downgraded by Jefferies and Raymond James. Following the stock’s sharp fall, Douglas stepped up and bought 3.3 million shares, or $50.1 million worth of stock. Most of Douglas’ position was bought at $14.27 a share, but he also bought some stock last week before it dropped so sharply, at around $24.91.
Douglas has been a repeat buyer of the stock as it’s dropped in price, averaging down on AMSC since last February, but this was Douglas’ largest one-time purchase. He clearly thinks the selloff was overdone.
From a technical standpoint, AMSC was able to hold some longer-term support at around $11.66 a share. If the stock breaks that level it will most likely head down to $8 to $9 a share. If you want to buy it now, I would use a mental stop at around $12.54, which was the low following the sharp slide last week.
American Semiconductor shows up on a recent list of 3 Bargain Stocks to Watch .
Golub Capital BDC
Another stock that has experienced some notable buying by key corporate insiders is Golub Capital BDC (GBDC), a closed-end, nondiversified management investment company. Its investment objective is to maximize the total return to its stockholders in the form of current income and capital appreciation through debt and minority equity investments. So far in 2011 the stock is off by around 7%.
On April 1, CEO David Golub participated in a $55 million equity offering along with Chairman Lawrence Golub and another director. David Golub bought 126,984 shares, or about $2 million worth of stock, at an average price of $15.75. Lawrence Golub bought the exact same amount of stock at the same price, and director William Webster bought 25,000, shares or $393,750 worth of stock, at an average price of $15.85. Both Lawrence and David are both 10% owners of the company.
From a technical standpoint, shares of Golub Capital are now trading below the 50-day moving average of $16.43. The stock does have some near-term support at around $15.60 to $15 a share, but it has been making lower highs since March and looks like it wants to continue to trend downward. I would only buy this stock if it holds above the 200-day moving average of $15.39. If it falls below that level, I would avoid it for now.
Golub Capital is one of the top-yielding financial services stocks.
If you’re looking for a health care play with some big insider buying, then you might want to take a look at Celera (CRA), which focuses on the integration of genetic testing into routine clinical care through a combination of products and services. This stock is off to a hot start in 2011 with shares already up around 27%. Celera has a market cap of $661.59 million and trades a forward price-to-earnings of 73.27. This company is cash-rich with around $326.88 million in cash on its balance sheet and zero debt.
Recently, Quest Diagnostics (DGX) opened its tender offer in an effort to buy Celera for $671 million, or $8 in cash per share. Basically, Quest is trying to buy Celera for twice the amount of cash the company has on its balance sheet. What’s interesting here is that some insiders are stepping up to buy the stock after the market has priced in the premium of the Quest deal. That tells me that some market players think the deal isn’t good enough and that the company will hold out for a better price or turn down the deal all together and go it alone.
BVF Partners, a beneficial owner of 10% of the company bought 182,000 shares, or $1.5 million worth of stock, at an average price of $8.20 a share. Again, I can’t really think of any reason why a beneficial owner would come in after a buyout offer and buy shares unless it was planning on throwing its weight around and convincing the company to turn it down or get a better price.
Another health care stock whose insiders have been loading up is Rexahn Pharmaceuticals (RNJN), a clinical stage biopharmaceutical company developing and seeking to deliver cures for cancer and disorders of the central nervous system to patients worldwide. So far in 2011 this stock is up around 8.2%. This is A small-cap biotech stock with a current market cap of $105.87 million and an enterprise value of $91.08 million. Rexahn has about $14.79 million in cash on its balance sheet and zero debt.
Rexahn’s chairman and CEO, Chang Ho Ahn, bought 320,846 shares, or $391,432 worth of stock, at an average price of $1.22 a share.
From a technical standpoint, shares of Rexahn are now trading below both its 50-day and 200-day moving averages. The stock has some longer-term support at around $1 to $1.10 a share, so if you want to own this name you might get a better chance to enter on any pullback. I would say the probability is high that we get that pullback very soon from its current price of $1.22.
Another stock whose CEO has stepped up and bought some shares is Comtech Telecommunications (CMTL), which designs, develops and markets products, systems and services for communications solutions. The vompany operates in three segments: telecommunications transmission, mobile data communications and radio frequency microwave amplifiers. This stock hasn’t done much in 2011, with shares up by around 4.7%.
Comtech has a current market cap of $778.16 million, and the stock trades at a forward price-to-earnings ratio of 26.51. The company has a decent amount of cash on its balance sheet at around $393 million once you back out the total debt of $200 million.
Comtech’s chairman and CEO, Fred Kornberg, bought 10,126 shares, or $275,629 worth of stock, at an average price of $27.22 a share.
From a technical standpoint, this stock has started to make lower highs during the past couple of months, but shares are trading above both its 50-day and 200-day moving averages. I wouldn’t buy this stock until it breaks the lower-highs trend, which would mean a move above $30 to $30.50 a share.
Another telecommunications company whose CEO has been buying stock is MDC Partners (MDCA), a provider of marketing communications services to customers globally with operating units in the U.S, Canada, Europe and Jamaica. This stock has traded pretty much flat on the year, with shares off by around 1.3%.
MDC Partners has a current market cap of $504.51 million and trades at a forward price-to-earnings ratio of 44.95. This company is loaded with debt on its balance sheet, with around $275 million in total debt after you back out $10.95 million in cash.
MDC Partners’ chairman and CEO bought 15,000 shares, or $248,250 worth of stock, at an average price of $16.44 a share.
From a technical standpoint, this stock is trading just below its 50-day moving average of $17.16 a share. I would buy this stock if it can get above that key moving average, and if it can trade above some near-term overhead resistance at around $17.59 a share. I would add aggressively to this position if the stock takes out some major overhead resistance at around $18.50 to $19 a share. A move above those levels would be huge because it would take the stock into all-time-high territory.
MDC Partners is one of the 20 highest-yielding media stocks.
To see more stocks with notable insider buying, check out the 6 Stocks With Big Insider Buying portfolio on Stockpickr.
-- Written by Roberto Pedone in Winderemere, Fla.
Please note that due to factors including low market capitalization and/or insufficient public float, we consider Rexahn and Golub Capital to be small-cap stocks. You should be aware that such stocks are subject to more risk than stocks of larger companies, including greater volatility, lower liquidity and less publicly available information, and that postings such as this one can have an effect on their stock prices.
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 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.