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 several stocks that insiders have been doing some big guying in per Securities and Exchange Commission filings.
One stock that insiders are snapping up a huge amount of is Imax, which, together with its wholly owned subsidiaries, operates as an entertainment technology company specializing in motion picture technologies and presentations worldwide.
Insiders are loading up on this stock into strength, since shares are up a whopping 38 percent so far in 2012.
Imax has a market capitalization of $1.67 billion and an enterprise value of $1.62 billion.
This stock trades at a premium valuation, with a trailing price-to-earnings of 89 and a forward price-to-earnings of 22.38. Its estimated growth rate for this year is 135 percent, and for next year it’s pegged at 21.3 percent. This is not a cash-rich company, since the total cash position on its balance sheet is $21.59 million, and its total debt is $55 million.
A beneficial owner just bought 183,600 shares, or about $4.3 million worth of stock, at $22.62 to $24.11 per share. This same beneficial owner also just bought 326,400 shares, or about $7.49 million worth of stock, at $22.91 to $23.04 per share.
From a technical perspective, IMAX is currently trading above both its 50-day and 200-day moving averages, which is bullish. This stock recently bounced right off its 50-day at $22.50 a share, and it has now started enter breakout territory, with the stock moving above some near-term overhead resistance at $25.12 to $25.34 a share. That move started on Tuesday, and it was accompanied by massive upside volume of 3.34 million shares.
If you’re bullish on IMAX, then I would look for long-biased trades once it triggers its next major breakout trade above some past overhead resistance levels at $26.48 to $26.68 a share with high volume.
Look for volume on that breakout that registers near or above its three-month average action of 1.3 million shares. If we get that move soon, then IMAX could easily spike north of $30 a share.
I would avoid IMAX or look for short-baized trades if it fails to hold that near-term breakout over $25.12 to $25.34 a share, and then drops back below its 50-day at $22.50 and 200-day at $21.58 with high volume. If we get that action, then look for IMAX to trend back below $20 a share.
2. Synageva BioPharma
In the biotechnology and drugs complex, insiders are loading up on Synageva BioPharma, which is focused on the discovery, development and commercialization of therapeutic products for patients with life-threatening rare diseases and unmet medical needs.