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.
At the end of the day, it’s 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.
One stock where insiders are doing some significant amount of buying in is Valence Technology . This company develops, manufactures and sells dynamic energy systems utilizing its phosphate-based lithium-ion technology. This stock hasn't done much in 2012 with shares up 3 percent so far on the year.
Valence Technology has a market cap of $169 million and an enterprise value of $204 million. This stock trades at an expensive valuation, with a forward price-to-earnings of 33.73. Their estimated growth rate for this year is 1 percent and for next year it's pegged at 133.3 percent. This is not a cash-rich company, since the total cash position on their balance sheet is $4.96 million and their total debt is $39.78 million.
A director and beneficial owner just bought 2,078,068 shares, or $2 million worth of stock, at 97 cents per share.
From a technical standpoint, VLNC is currently trading above its 50-day moving average and below its 200-day moving average, which is neutral trend-wise. This stock recently soared off its December lows near 70 cents to a recent high of $1.05 a share. Now this stock is setting up to trigger a big breakout if it can manage to clear some near-term overhead resistance with volume.
If you're bullish on VLNC, I would look to be a buyer once it breaks out above $1.05 to $1.10 (200-day) a share with volume. Look for volume on the breakout that registers near or above its three-month average volume of 365,421. One could be a buyer of VLNC off any weakness and simply use a mental stop below some near-term support at 95 cents per share. Target a run back toward $1.25 to $1.34 if we get a high-volume breakout soon.
Another name that insiders are snapping up is WebMD Health . This is a provider of health information services to consumers, physicians and other health care professionals, employers and health plans through its public and private online portals, mobile platforms and health-focused publications. Insiders have clearly spotted some deep value since this stock is already down 27 percent in 2012.
WebMD has a market cap of $1.53 billion and an enterprise value of $1.18 billion. This stock trades at a rich valuation, since their trailing price-to-earnings is 18.4 and their forward price-to-earnings of 59. Their estimated growth rate for this year is 43.5 percent and for next year it's pegged at -62.3 percent. This is a cash-rich company, since the total cash position on their balance sheet is $1.10 billion and their total debt is $800 million. This gives WedMD $300 million in net cash on the books.
A beneficial owner just bought 394,819 shares, or around $10.3 million worth of stock, at $26.28 per share. This same director also just bought over $13 million worth of stock at $26.22 to $26.11 per share.
From a technical standpoint, WBMD is currently trading below its 50-day and 200-day moving averages, which is bearish. This stock recently gapped down huge with monster volume from over $37 a share to a recent low of $25.01 a share. Since that large gap down, the stock has started to recover some and has held that $25.01 low so far.
If you're bullish on WBMD, then one could be a buyer once it triggers a breakout trade above $28.18 with volume. That $28.18 level is the recent high on the stock and any move above that price will push this stock back into the gap down zone from earlier this month. Look for volume that's near or above its three-month average action of 1.13 million shares. If we get that breakout soon, then look for WBMD to spike big.
One stock in the biotechnology and drugs complex where insiders are buying up a large amount of stock in is Incyte . This is a drug discovery and development company, focused on developing small molecule drugs to treat serious unmet medical needs. Insiders are buying into strength here since this stock is already up over 19.5 percent in 2011.
Incyte has a market cap of $2.26 billion and an enterprise value of $2.21 billion. This stock trades at a price-to-sales of 14.65. Their estimated growth rate for this year is -461.5 percent and for next year it's pegged at 35.6 percent. This is barely a cash-rich company, since the total cash position on their balance sheet is $316.98 million and their total debt is a whopping $310.28 million.
A director and beneficial owner just bought 543,239 shares, or about $8.89 million worth of stock, at $16.26 to $16.53 per share.
From a technical standpoint, INCY is currently trading above both its 50-day and 200-day moving averages, which is bullish. This stock recently triggered a big breakout trade once it took out some near-term overhead resistance at $16.75 a share with volume. This breakout now gives INCY a chance to re-test its August high of $20.36 a share in the near future. The only issue here is that INCY is starting to enter overbought territory since the relative strength index is at 80.35.
If you're a bullish on INCY, then I would consider looking for long-biased trades as long as the stock continues to trend above its breakout level of $16.75 a share. Even though the stock is overbought as measured by its RSI, it can still continue to stay overbought and trend higher. That said, the upside is probably limited since it has run from its $11.76 low in November to its current price of just under $18.
One stock in the software and programming complex where insiders are jumping into the stock is Progress Software. This is a global enterprise software company. Progress Software offers a portfolio of real-time software solutions. Insiders are buying into some weakness here since this stock is down 21 percent in the last six months.
Progress Software has a market cap of $1.27 billion and an enterprise value of $951.5 million. This stock trades at a reasonable valuation, since their trailing price-to-earning is 23 and their forward price-to-earnings is 13.86. Their estimated growth rate for this year is -14.5 percent and for next year it's pegged at 16.9 percent. This is a cash-rich company, since the total cash position on their balance sheet is $261.42 million and their total debt is zero.
A director just bought 28,000 shares, or close to $515,861 worth of stock, at $18.42 per share.
From a technical standpoint, PRGS is currently trading above its 50-day moving average and below its 200-day moving average, which is neutral trend-wise. This stock recently bounced off some major support at $17 a share to its current price of just over $20 a share. That $17 level sits right above the last major support for PRGS — $16.71 back in October. This stock has also just started to move back above its 50-day moving average today of $19.91 a share.
If you're bullish about PRGS, I would look to be a buyer of this stock if it closes above that 50-day average today with strong volume. Look for volume that's tracking in close to or near its three-month average action of 451,674 shares. If we get that action today or soon, then look for PRGS to trend back toward its 200-day moving average of $22.65, or potentially much higher. I would simply use a mental stop a few percentage points below the 50-day if it takes it out with volume soon.
One final stock in the retail complex where insiders are snapping up some shares is Hot Topic . This is a mall- and Web-based specialty retailer operating the Hot Topic and Torrid concepts, as well as the e-space music concept, ShockHound. This stock is off to a strong start in 2011 with shares up around 11 percent.
Hot Topic has a market cap of $310 million and an enterprise value of $271 million. This stock trades at a reasonable valuation, since their forward price-to-earnings is 28.23. Their estimated growth rate for this year is 1,800 percent and for next year it's pegged at 52.9 percent. This is a cash-rich company, since the total cash position on their balance sheet is $41.78 million and their total debt is zero.
A director just bought 33,200 shares, or about 233,390 worth of stock, at $7.03 per share. This same director also bought $474,500 worth of stock at $6.78 per share back in November.
From a technical standpoint, HOTT is currently trading above its 50-day and 200-day moving average, which is bullish. That said, this stock has started to struggle right near some overheard resistance of $7.51 a share. A failure of this stock to get back above that resistance level could setup shares of HOTT to trend lower in the near term.
If you're bullish on HOTT, I would only buy once it breaks out above $7.51 to $7.75 a share with strong volume. Look for volume on the breakout that's near or well above its three-month average action of 540,510 shares. If we get that action, then I would look for HOTT to trend back toward its 52-week high of $8.74. I would avoid any long trades on HOTT if it breaks below its 50-day moving average of $6.92 with volume.
Additional News: WebMD Scraps Sale Talks, Warns of Weak 2012
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