DELAFIELD, Wis. (Stockpickr) -- The U.S. stock market continued on its wild ride on Tuesday, with the Dow Jones Industrial Average dropping 128 points and the S&P 500 losing 6.9 points as volatility once gain reigned supreme. This volatile trading action marked the third trading session in a row that the Dow has either gained or lost over 100 points on a closing basis.
During times like these, it's better to step aside, let the volatility run its course and focus on prevailing fundamentals -- including large insider activity.
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.
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.
American Homes 4 Rent
One real estate investment trust that insiders are loading up on here is American Homes 4 Rent (AMH - Get Report), which engages in the acquisition, renovation, leasing and operating of single-family home rental properties in the U.S. Insiders are buying this stock into modest weakness, since shares have traded off by 5.9% over the last six months.
American Homes 4 Rent has a market cap of $3.4 billion and an enterprise value of $5.1 billion. This stock trades at a reasonable valuation, with a forward price-to-earnings of 16.7. Its estimated growth rate for this year is 38.6%, and for next year it's pegged at 24.1%. This is not a cash-rich company, since the total cash position on its balance sheet is $108.80 million and its total debt is $1.78 billion. This stock currently sports a dividend yield of 1.2%
A director just bought 844,130 shares, or about $13.70 million worth of stock, at $16.15 to $16.28 per share. That same director also just bought 155,870 shares, or about $2.53 million worth of stock, at $16.25 per share.
From a technical perspective, AMH is currently trending below both its 50-day and 200-day moving averages, which is bearish. This stock has been downtrending over the last two months and change, with shares falling from its high of $17.50 to its recent low of $15.86 a share. During that downtrend, shares of AMH have been making mostly lower highs and lower lows, which is bearish technical price action. That said, shares of AMH have now started to rebound off that $15.86 low and it's beginning to trend within range of triggering a near-term breakout trade.
If you're bullish on AMH, then I would look for long-biased trades as long as this stock is trending above that recent low of $15.86 a share and then once it breaks out above some key near-term overhead resistance levels at $16.53 to $16.75 a share and then above $16.90 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 volume of 869,017 shares. If that breakout hits soon, then AMH will set up to re-test or possibly take out its next major overhead resistance levels at its 200-day moving average of $17.23 to $17.50 a share, or even its 52-week high of $18.85 a share.
Must Read: 10 Stocks Billionaire John Paulson Loves
Diamond Offshore Drilling
An energy stock that insiders are in love with here is Diamond Offshore Drilling (DO - Get Report), which provides contract drilling services to the energy industry worldwide. Insiders are buying this stock into major weakness, since shares have trended down by 30.4% over the last six months.
Diamond Offshore Drilling has a market cap of $3.6 billion and an enterprise value of $5.7 billion. This stock trades at a premium valuation, with trailing price-to-earnings of 9.5 and a forward price-to-earnings of 36.2. Its estimated growth rate for this year is -33.8%, and for next year it's pegged at -64.4%. This is not a cash-rich company, since the total cash position on its balance sheet is $249.66 million and its total debt is $2.24 billion.
A beneficial owner just bought 685,373 shares, or above $18.21 million worth of stock, at $26.52 to $27.05 per share.
From a technical perspective, DO is currently trending well below both its 50-day and 200-day moving averages, which is bearish. This stock has been downtrending badly for the last three months, with shares moving lower from its high of $39.86 to its new 52-week low of $26.02 a share. During that downtrend, shares of DO have been making mostly lower highs and lower lows, which is bearish technical price action.
If you're in the bull camp on DO, then I would look for long-biased trades as long as this stock is trending above its new 52-week low of $26.02 a share and then once it breaks out above some near-term overhead resistance levels at $27.43 to $28.58 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 1.87 million shares. If that breakout triggers soon, then DO will set up to re-test or possibly take out its next major overhead resistance levels at $30.96 to its 50-day moving average of $31.78 a share.
Must Read: Warren Buffett's Top 10 Stock Buys
Kinder Morgan
One basic materials stock that insiders are jumping into here is Kinder Morgan (KMI - Get Report), which operates as an energy infrastructure and energy company in North America. Insiders are buying this stock into modest strength, since shares have moved up by 7% over the last six months.
Kinder Morgan has a market cap of $86 billion and an enterprise value of $129 billion. This stock trades at a premium valuation, with a trailing price-to-earnings of 45.8 and a forward price-to-earnings of 42. Its estimated growth rate for this year is -16.8%, and for next year it's pegged at 9%. This is not a cash-rich company, since the total cash position on its balance sheet is $458 million and its total debt is $43.02 billion. This stock currently sports a dividend yield of 4.5%.
From a technical perspective, KMI is currently trending above its 200-day moving average and right below its 50-day moving average, which is neutral trendwise. This stock has been consolidating and trending sideways over the last two months and change, with shares moving between $39.45 on the downside and $43.18 on the upside. Shares of KMI are now starting to spike higher off that $39.45 low and it's beginning to move within range of triggering a major breakout trade above the upper-end of its recent sideways trending chart pattern.
If you're bullish on KMI, then I would look for long-biased trades as long as this stock is trending above its recent low of $39.45 a share or above its 200-day at $38.36 a share and then once it breaks out above its 50-day at $41.18 a share and then above more key resistance levels at $42.33 to $42.46 a share and its all-time high of $43.18 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 11.65 million shares. If that breakout materializes soon, then KMI will set up to enter new all-time-high territory above $43.18, which is bullish technical price action. Some possible upside targets off that breakout are $50 to $55 a share.
JMP Group
JMP Group has a market cap of $164 million and an enterprise value of 1.13 billion. This stock trades at a cheap valuation, with a trailing price-to-earnings of 13.3 and a forward price-to-earnings of 7.6. Its estimated growth rate for this year is 16.4%, and for next year it's pegged at 18.8%. This is not a cash-rich company, since the total cash position on its balance sheet is $131.05 million and its total debt is $1.10 billion. This stock currently sports a dividend yield of 5.8%.
From a technical perspective, JMP is currently trending above both its 50-day and 200-day moving averages, which is bullish. This stock spiked modestly higher on Tuesday right off its 50-day moving average and into breakout territory above some near-term overhead resistance at $7.67 a share with strong upside volume flows. That move has now started to push shares of JMP above a key downtrend line that dates back to the start of the year.
If you're bullish on JMP, then I would look for long-biased trades as long as this stock is trending above its 50-day at $7.57 or above its 200-day at $7.01 and then once it breaks out above some near-term overhead resistance levels at $7.88 to $8.08 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 78,235 shares. If that breakout kicks off soon, then JMP will set up to re-test or possibly take out its next major overhead resistance levels at $8.31 to $8.32 a share, or even its 52-week high of $8.40 a share. Any high-volume move above $8.40 will then give JMP a chance to tag $9 to $10 a share.
Five9
One final stock with some decent insider buying is Five9 (FIVN), which provides cloud software for contact centers in the U.S. and internationally. Insiders are buying this stock into notable weakness, since shares have dropped by 20.8% over the last six months.
A director just bought 200,000 shares, or about $900,000 worth of stock, at $4.50 per share. From a technical perspective, FIVN is currently trending above its 50-day moving average and below its 200-day moving average, which is neutral trendwise. This stock has been uptrending strong for the last month and change, with shares moving higher from its low of $3.64 to its intraday high of $4.79 a share. During that uptrend, shares of FIVN have been consistently making higher lows and higher highs, which is bullish technical price action. That move has now pushed shares of FIVN within range of triggering a big breakout trade above some key near-term overhead resistance levels.
If you're bullish on FIVN, then I would look for long-biased trades as long as this stock is trending above some key near-term support levels at $4.50 to its 50-day at $4.11 a share and then once it breaks out above Tuesday's intraday high of $4.79 to some more near-term overhead resistance at $5.05 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 192,087 shares. If that breakout begins soon, then FIVN will set up to re-test or possibly take out its next major overhead resistance levels at its 200-day moving average of $5.39 to more resistance at $5.74 a share
By Roberto Pedone
No comments:
Post a Comment