DELAFIELD, Wis. (Stockpickr) -- Corporate insiders sell their own companies' stock for a number of reasons.
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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 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 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 five stocks whose insiders have been doing some big buying per SEC filings.
Flextronics International
One technology player that insiders are snapping up a huge amount of stock in here is Flextronics International (FLEX) , which provides design, manufacturing and supply chain services to original equipment manufacturers worldwide. Insiders are buying this stock into notable weakness, since shares are off 8% over the last three months.
Flextronics International has a market cap of $5.9 billion and an enterprise value of $7 billion. This stock trades at a cheap valuation, with a trailing price-to-earnings of 12.6 and a forward price-to-earnings of 9. Its estimated growth rate for this year is 12.4%, and for next year it's pegged at 12%. This is not a cash-rich company, since the total cash position on its balance sheet is $1.35 billion and its total debt is $2.42 billion.
A beneficial owner just bought 5,000,000 shares, or about $50.85 million worth of stock, at $10.17 per share.
From a technical perspective, FLEX is currently trending below its 50-day moving average and just above its 200-day moving average, which is neutral trendwise. This stock has been downtrending over the last month, with shares moving lower from its high of $11.83 to its recent low of $9.77 a share. During that downtrend, shares of FLEX have been consistently making lower highs and lower lows, which is bearish technical price action. That said, shares of FLEX have for now been defended right around its 200-day moving average of $9.77 a share. If that level can hold, then this could be an ideal buying point for the stock.
If you're bullish on FLEX, then I would look for long-biased trades as long as this stock is trending above its 200-day moving average at $9.77 a share and then once it breaks out above some near-term overhead resistance at $10.45 a share to its 50-day at $10.69 a share with high volume. Look for a sustained move or close above those levels with volume that hits near or above its three-month average action of 4.10 million shares. If that breakout triggers soon, then FLEX will set up to re-test or possibly take out its next major overhead resistance levels at $11.25 to its 52-week high at $11.83 a share. Any high-volume volume above $11.83 will then give FLEX a chance to trend well north of $12 a share.
Another technology player that insiders are loading up on here is Entegris (ENTG) , which develops, manufactures and supplies products and materials that are used in processing and manufacturing in the microelectronics and other high-technology industries worldwide. Insiders are buying this stock into notable weakness, since shares are down by 17.5% over the last three months.
Entegris has a market cap of $1.6 billion and an enterprise value of $2 billion. This stock trades at a reasonable valuation, with a trailing price-to-earnings of 43 and a forward price-to-earnings of 12.5. Its estimated growth rate for this year is 15.3%, and for next year it's pegged at 35.3%. This is not a cash-rich company, since the total cash position on its balance sheet is $377.94 million and its total debt is $817.70 million.
A beneficial owner just bought 257,058 shares, or about $2.96 million worth of stock, at $11.49 to $11.54 per share.
From a technical perspective, ENTG is currently trending below both its 50-day and 200-day moving averages, which is bearish. This stock might be forming a major bottoming chart pattern here, since shares of ENTG have find buying interest each time its pulled back to right around $11.40 a share. If that level can hold as support, then shares of ENTG have a solid chance of triggering a near-term breakout trade.
If you're in the bull camp on ENTG, then I would look for long-biased trades as long as this stock is trending above some key near-term support at around $11.40 a share and then once it breaks out above both its 50-day at $11.79 and its 200-day at $11.92 a share and then above more key resistance levels at $12.25 to $12.31 a share with high volume. Look for a sustained move or close above those levels with volume that hits near or above its three-month average action of 818,826 shares. If that breakout develops soon, then ENTG will set up to re-test or possibly take out its next major overhead resistance levels at $13.50 to its 52-week high at $14 a share.
One beauty products player that insiders are jumping into here is Elizabeth Arden (RDEN) , which is engaged in the manufacture, distribution, marketing and sale of fragrances, skin care and cosmetic products worldwide. Insiders are buying this stock into massive weakness, since shares have plunged by 50% so far in 2014.
Elizabeth Arden has a market cap of $524.67 million and an enterprise value of $886.74 million. This stock trades at a reasonable valuation, with a forward price-to-earnings of 32.54. Its estimated growth rate for this year is 23.6%, and for next year it's pegged at 228.60%. This is not a cash-rich company, since the total cash position on its balance sheet is $56.31 million and its total debt is $436.85 million.
A beneficial owner just bought 29,744 shares, or about $505,000 worth of stock, at $16.86 to $17 per share.
From a technical perspective, RDEN is currently trending below both its 50-day and 200-day moving averages, which is bearish. This stock has been trending sideways and consolidating for the last month and change, with shares moving between $16.35 on the downside and $18.60 on the upside. Shares of RDEN are starting to spike higher here right above that range low of $16.35 a share. This spike is quickly pushing the stock within range of triggering a big breakout trade above the upper-end of its recent sideways trading chart pattern.
If you're bullish on RDEN, then I would look for long-biased trades as long as this stock is trending above $16.35 a share and then once it breaks out above its 50-day moving average of $17.90 a share and then above its range high of $18.60 a share with high volume. Look for a sustained move or close above those levels with volume that hits near or above its three-month average volume of 567,609 shares. If that breakout materializes soon, then RDEN will set up to re-fill some of its previous gap-down-day zone from August that started just above $20 a share. If that gap gets filled with strong upside volume flows, then RDEN will have a chance to tag $22 to $24 a share.
One auto parts player that insiders are active in here is Allison Transmission (ALSN) , which design, manufactures and sells commercial and defense automatic transmissions for medium- and heavy-duty commercial vehicles and medium- and heavy-tactical U.S. defense vehicles. Insiders are buying this stock into weakness, since shares have fallen by 11.2% over the last three months.
Allison Transmission has a market cap of $4.8 million and an enterprise value of $7.4 million. This stock trades at a cheap valuation, with a trailing price-to-earnings of 26 and a forward price-to-earnings of 19. Its estimated growth rate for this year is 34.1%, and for next year it's pegged at 21.2%. This is not a cash-rich company, since the total cash position on its balance sheet is $126.70 million and its total debt is $2.68 billion. This stock currently sports a dividend yield of 1.7%.
A beneficial owner just bought 550,000 shares, or about $15.57 million worth of stock, at $28.07 to $28.43 per share.
From a technical perspective, ALSN is currently trending well below both its 50-day and 200-day moving averages, which is bearish. This stock has been downtrending for the last three months and change, with shares falling from its high of $32.09 to its intraday low of $27.60 a share. During that downtrend, shares of ALSN have been mostly making lower highs and lower lows, which is bearish technical price action.
If you're bullish on ALSN, then I would look for long-biased trades as long as this stock is trending above some key past support levels at $26 to $25.40 a share and then once it breaks out above some key near-term overhead resistance at $28.99 and above both its 200-day at $29.55 a share and its 50-day at $29.66 a share with high volume. Look for a sustained move or close above those levels with volume that registers near or above its three-month average action of 1.50 million shares. If that breakout hits soon, then ALSN will set up to re-test or possibly take out its next major overhead resistance levels at $31 to its 52-week high at $32.21 a share.
One final stock with some decent insider buying is Web.com Group (WWWW) , which provides Internet services to small businesses in North America, South America, and the U.K. Insiders are buying this stock into major weakness, since shares have dropped sharply so far in 2014 by 40%.
Web.com Group has a market cap of $966 million and an enterprise value of $1.4 billion. This stock trades at a cheap valuation, with a forward price-to-earnings of 7. Its estimated growth rate for this year is 15.5%, and for next year it's pegged at 9.8%. This is not a cash-rich company, since the total cash position on its balance sheet is $14.61 million and its total debt is $527.16 million.
A beneficial owner just bought 228,798 shares, or about $4.57 million worth of stock, at $19.99 per share.
From a technical perspective, WWWW is currently trending below both its 50-day and 200-day moving averages, which is bearish. This stock gapped down sharply in August from $27 to $19.36 a share with heavy downside volume. Following that gap down, shares of WWWW went on to make a new 52-week low at $18.61 a share. Since then, ever time this stock has rallied up near its 50-day moving average it has run into stiff selling resistance.
If you're bullish on WWWW, then I would look for long-biased trades as long as this stock is trending above its new 52-week low of $18.61 a share and then once it breaks out above its 50-day moving average of $20.08 a share to more key overhead resistance at $21.33 a share with high volume. Look for a sustained move or close above the levels with volume that hits near or above its three-month average volume of 876,171 shares. If that breakout kicks off soon, then WWWW will set up to re-fill some of its previous gap-down-day zone from August that started near $27 a share.
To see more stocks with notable insider buying, check out the Stocks With Big Insider Buying portfolio on Stockpickr.
-- Written by Roberto Pedone in Delafield, Wis.
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