Corporate insiders sell their own companies' stock for a number of reasons.
Stockbyte | Getty Images
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.
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 as shown in SEC f ilings.
Bank of America
A global banking giant that insiders are loading up on here is Bank of America , which provides various banking and financial products and services to individual consumers, small-and middle-market businesses, institutional investors, corporations, and governments in the U.S. and internationally. Insiders are buying this stock into some major strength, with shares up 45 percent so far in 2012.
Bank of America has a market cap of $87.4 billion and an enterprise value of $145.98 billion. This stock trades at a cheap valuation, with a forward price-to-earnings of 8.03. Its estimated growth rate for this next quarter is -71.4 percent, and for next year it's pegged at 71.2 percent. This is far from a cash-rich company, since the total cash position on its balance sheet is $643.88 billion and its total debt is $701.83 billion. After you back out the cash, Bank of America has a total of $57.95 billion in total debt on its books.
A director just bought 482,794 shares, or around $3.55 million worth of stock, at $7.36 per share.
From a technical perspective, Bank of America is currently trading above both its 50-day and 200-day moving averages, which is bullish. This stock just started to trigger a near-term breakout since shares have moved above some overhead resistance at $7.90, and above its 50-day moving average of $7.78 a share. This move is pushing BAC within range of triggering another near-term breakout trade.
If you're bullish on Bank of America, then I would look for long-biased trades once this stock breaks out above some near-term overhead resistance at $8.39 a share with high volume. Look for volume on that move that registers near or above its three-month average volume of 223 million shares. If we get that action soon, then look for Bank of America to re-test and possibly take out its next significant overhead resistance levels at $9.17 to $10.09 a share. Keep in mind, that traders can also buy Bank of America and anticipate the breakout as long as it's trending above its 50-day with strong volume.
I would simply avoid Bank of America or look for short-biased trades if it fails to trigger that breakout, and then drops back below its 50-day moving average of $7.78 a share with high volume. A high-volume move below that level would setup Bank of America to re-test and possibly take out its 200-day moving average of $7.17 a share.
Kinder Morgan
A stock in the natural gas utilities complex that insiders are jumping into here is Kinder Morgan , which owns and manages a diversified portfolio of energy transportation and storage assets in the U.S. and Canada. Insiders are buying this stock into some modest strength since shares are up around 8 percent in the last six months.
Kinder Morgan has a market cap of $22.88 billion and an enterprise value of $39.46 billion. This stock trades at a rich valuation, with a trailing price-to-earnings of 65.11 and a forward price-to-earnings of 24.33. Its estimated growth rate for this year is 16.3 percent, and for next year it's pegged at 24.3 percent. This is far from a cash-rich company, since the total cash position on its balance sheet is $495 million and its total debt is $17.44 billion. Kinder Morgan currently sports a dividend yield of 4 percent.
A director just bought 10,000 shares, or about $314,000 worth of stock, at $31.40 per share.
From a technical perspective, Kinder Morgan is currently trading below its 50-day moving average and above its 200-day moving average, which is neutral trendwise. This sock has been downtrending hard since April, with shares sliding lower from a high of $39.89 to a recent low of $31.02 a share. During that sharp move lower, shares of Kinder Morgan have consistently made lower highs and lower lows, which is bearish technical price action. That said, the stock just bounced off its 200-day moving average of around $31 and could bet setting up to reverse its downtrend.
If you're in the bull camp on Kinder Morgan, then I would look for long-biased trades once this stock breaks out above some near-term overhead resistance at $33 to $34.33 a share with high-volume. Look for volume on that move that hits near or above its three-month average action of 6 million shares. A move over $34.33 would also put Kinder Morgan above its 50-day moving average of $34.22 a share. If we get that action soon, then Kinder Morgan could easily re-test or take out its next significant overhead resistance level at $37.21 a share.
On the flipside, I would avoid Kinder Morgan or look for short-biased trades if it fails to trigger that move, and then drops below some near-term support at $31.02 a share with heavy volume. A move below $31.02 would also push Kinder Morgan back below its 200-day moving average of $31.44, which would be bearish price action. A new low below $31.02 would also continue the recent downtrend price action for shares of Kinder Morgan.
Molycorp
Insiders are warming up here to Molycorp , whose rare earth products include oxides, metals, alloys, and magnets for various inputs in existing and emerging applications comprising clean energy technologies, multiple high-tech uses, defense applications, and water treatment technology. Insiders are sniffing out some deep value here since this stock has dropped 29 percent in the last three months.
Molycorp has a market cap of $1.99 billion and an enterprise value of $1.51 billion. This stock trades at a reasonable valuation, with a trailing price-to-earnings of 16.98 and a forward price-to-earnings of 5.5. Its estimated growth rate for this year is -8.6 percent, and for next year it's pegged at 169.6 percent. This is a cash-rich company, since the total cash position on its balance sheet is $609.79 million and its total debt is $199.30 million. After you back out the debt, Molycorp has a total of $410.49 million in cash on its books.
A director just bought 12,153 shares, or about $249,000 worth of stock, at $20.50 per share.
From a technical perspective, Molycorp is currently trading below both its 50-day and 200-day moving averages, which is bearish. This stock has been destroyed by the bears during the last three months, with shares plunging from a high of $35.79 to a recent low of $19.11 a share.
During that downtrend, shares of Molycorp have mostly made lower highs and lower lows, which is bearish technical price action. That said, shares of Molycorp could be forming a bottom here since buying interest has moved back into the stock at $19.11 to $19.49 a share.
If you're bullish on Molycorp, then I would look for long-biased trades as long as its trending above that recent low of $19.11 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 3 million shares as bullish.
One could also look to buy strength and get long once Molycorp breaks out above some near-term overhead resistance at $23.07, and then above its 50-day at $24.67 a share with high-volume. If we get that breakout soon, then look for Molycorp to re-test and possibly take out its next significant overhead resistance level at $25.92 a share.
On the flipside, I would avoid Molycorp or look for short-biased trades if that breakout fails to trigger soon, and then it takes out some major near-term support levels at $19.49 to $19.11 a share with heavy volume. A high-volume move below those levels will setup Molycorp to trade into new 52-week-low territory, which is bearish technical price action.
Tempur-Pedic
Another name that insiders are loading up on here is consumer goods player Tempur-Pedic , a manufacturer, marketer and distributor of premium mattresses and pillows, which it sells in approximately 80 countries under the TEMPUR and Tempur-Pedic brands. Insiders are finding some deep value here since this stock has plunged 55 percent so far in 2012.
Tempur-Pedic has a market cap of $1.5 billion and an enterprise value of $1.92 billion. This stock trades at a cheap valuation, with a trailing price-to-earnings of 7 and a forward price-to-earnings of 7.87. Its estimated growth rate for this year is -16.4 percent, and for next year it's pegged at 12.4 percent. This is not a cash-rich company, since the total cash position on its balance sheet is $134.02 million and its total debt is $566.17 million. After you back out the cash, Tempur-Pedic has a total of $432.15 million in debt on its books.
A director just bought 112,000 shares, or around $2.80 million worth of stock, at $25.00 to $25.16 per share. Another director also just bought 4,500 shares, or around $106,000 worth of stock, at $23.60 per share.
From a technical perspective, Tempur-Pedic is currently trading below both its 50-day and 200-day moving averages, which is bearish. This stock has just gapped down huge from over $40 to a low of $21.05 a share on monster volume. Since that gap-down, shares of Tempur-Pedic have been trending sideways between $21.05 on the downside and $25.79 on the upside. Traders should now look to play a move out of this sideways trading pattern, since it will likely setup the next major trend for Tempur-Pedic.
If you're in the bull camp on Tempur-Pedic, I would look for long-biased trades if this stock can manage to trigger a breakout above some near-term overhead resistance at $25.79 to $26.88 a share with high-volume. Look for volume on that move that registers near or above its three-month average volume of 4.4 million shares. That $26.88 price level is significant because that's the gap-down day high price. If we get that action soon, then look for Tempur-Pedic to rip significantly higher as the stock starts to fill some of that massive gap.
On the flipside, I would avoid Tempur-Pedic or look for short-biased trades if it fails to trigger that breakout soon, and then drops below some major near-term support at $22.58 to $21.05 a share with heavy volume. A high-volume move below those levels would be very bearish for TPX, since it would push the stock into new 52-week-low territory.
Dollar Thrifty Automotive Group
The last name to look at with some notable insider buying is rental and leasing player Dollar Thrifty Automotive Group , which is engaged in the business of the daily rental of vehicles to business and leisure customers through company-owned stores. Insiders are buying this stock into some decent strength here, with shares up around 20 percent in the last six months.
Dollar Thrifty Automotive Group has a market cap of $2.33 billion and an enterprise value of $3.3 billion. This stock trades at a fair valuation, with a trailing price-to-earnings of 14.03 and a forward price-to-earnings of 15.64. Its estimated growth rate for this year is 6 percent, and for next year it's pegged at -2.2 percent. This is far from a cash-rich company, since the total cash position on its balance sheet is $492.09 million and its total debt is $1.47 billion.
A beneficial owner just bought 7,800 shares, or about $622,000 worth of stock, at $78.89 to $80.79 per share.
From a technical perspective, Dollar Thrifty is currently trading above both its 50-day and 200-day moving averages, which is bullish. This stock has been uptrending strong for the past two months, with shares soaring from a low of $74.12 to a recent high of $83.58 a share. During that uptrend, shares of Dollar Thrifty have been printing mostly higher lows and higher highs, which is bullish technical price action. This move is quickly pushing Dollar Thrifty within range of triggering a major breakout trade.
If you're bullish on Dollar Thrifty, then I would look for long-biased trades once this stock triggers a break out above some past overhead resistance at $83.88 to $84.27 a share with high volume. Look for volume on that move that registers near or above its three-month average action of 384,456 shares. If we get that move soon, then DTG will enter all-time-high territory, and the stock will likely continue its uptrend towards $90 to $100 a share.
I would simply avoid Dollar Thrifty or look for short-biased trades if it fails to trigger that breakout, and then drops back below its 50-day moving average of $79.88 a share with high volume. If we get that action soon, then Dollar Thrifty could possibly trade down towards $75 to $74 a share or lower.
—By Stockpickr's Roberto Pedone
Additional News: Bank of America Offers Principal Reductions
Additional Views: Any Hope for Tempur-Pedic?
___________________________
CNBC Data Pages:
- Dow 30 Stocks—In Real Time
- Oil, Gold, Natural Gas Prices Now
- Where’s the US Dollar Today?
- Track Treasury Prices Here
______________________________
Disclosures:
TheStreet’s editorial policy prohibits staff editors, reporters, and analysts from holding positions in any individual stocks.