DELAFIELD, Wis. (Stockpickr) -- 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 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.
Freeport-McMoRan
One natural resources player that insiders are active in here is Freeport-McMoRan (FCX - Get Report), which engages in the acquisition of mineral assets, and oil and natural gas resources. Insiders are buying this stock into massive weakness, since shares have plunged by 61% over the last three months.
Freeport-McMoRan has a market cap of $8.1 billion and an enterprise value of $32.9 billion. This stock trades at a cheap valuation, with a forward price-to-earnings of 4.7. Its estimated growth rate for this year is -77.6%, and for next year it's pegged at 279.5%. This is not a cash-rich company, since the total cash position on its balance sheet is $466 million and its total debt is $20.9 billion. This stock currently sports a dividend yield of 2.1%.
From a technical perspective, Freeport-McMoRan is currently trending below both its 50-day and 200-day moving averages, which is bearish. This stock has been downtrending badly for the last four months, with shares falling sharply lower from its high of $23.74 to its new 52-week low of $7.76 a share. During that downtrend, shares of Freeport-McMoRan have been consistently making lower highs and lower lows, which is bearish technical price action. That move has now pushed this stock into oversold territory, since its current relative strength index reading is 20.44.
If you're bullish on Freeport-McMoRan, then I would look for long-biased trades as long as this stock is trending above its new 52-week low of $7.76 a share and then once it breaks out above some near-term overhead resistance levels at $8.50 to $9.26 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 24.56 million shares. If that breakout gets started soon, then this stock will set up to re-test or possibly take out its next major overhead resistance levels at its 20-day moving average of $10.24 to $11.50, or even $12 to $13 a share.
Town Sports International
Another sporting activities player that insider are jumping into here is Town Sports International (CLUB - Get Report), which owns and operates fitness clubs in the Northeast and Mid-Atlantic regions of the U.S. Insiders are buying this stock into massive weakness, since shares have plunged by 66.1% over the last six months.
Town Sports International has a market cap of $58 million and an enterprise value of $344 million. This stock trades at a reasonable valuation, with a price-to-sales of 0.13. Its estimated growth rate for this year is -448%, and for next year it's pegged at 64.2%. This is not a cash-rich company, since the total cash position on its balance sheet is $98.36 million and its total debt is $384.87 million.
A director just bought 359,796 shares, or about $890,000 worth of stock, at $2.36 to $2.64 per share.
From a technical perspective, Town Sports International is currently trending below both its 50-day and 200-day moving averages, which is bearish. This stock has been trending sideways inside of a wide range for the last month and change, with shares moving between $1.92 on the downside and $2.76 on the upside. Shares of Town Sports International have started to spike higher recently off its 20-day moving average of $2.32 a share, and that spike is starting to push the stock within range of triggering a major breakout trade above the upper-end of its recent sideways trending chart pattern.
If you're in the bull camp on Town Sports International, then I would look for long-biased trades as long as this stock is trending above some near-term support at $2.25 or above $2 a share and then once it breaks out above some near-term overhead resistance levels at its 50-day moving average of $2.59 to $2.76 a share with volume that hits near or above its three-month average action of 106,420 shares. If that breakout hits soon, then this stock will set up to re-test or possibly take out its next major overhead resistance levels at $3.10 to $3.50, or even $4 to $4.50 a share.
Radius Health
One biopharmaceutical player that insiders are loading up on here is Radius Health (RDUS), which focuses on developing therapeutics for patients with osteoporosis and other serious endocrine-mediated diseases in the U.S. Insiders are buying this stock into strength, since shares have ripped higher by 29.6% over the last six months.
Radius Health has a market cap of $2.5 billion and an enterprise value of $2.2 billion. This stock trades at a premium valuation, with a price-to-book of 11.65. Its estimated growth rate for this year is 45%, and for next year it's pegged at 17.6%. This is a cash-rich company, since the total cash position on its balance sheet is $224.01 million and its total debt is $24.53 million.
A beneficial owner just bought 100,000 shares, or about $6.40 million worth of stock, at $63.45 per share.
From a technical perspective, Radius Health is currently trending below its 50-day moving average and above its 200-day moving average, which is neutral trendwise. This stock has been downtrending over the last two months, with shares moving lower from its high of $84.64 to its recent low of $52.50 a share. During that downtrend, this stock has been making mostly lower highs and lower lows, which is bearish technical price action.
If you're bullish on Radius Health, then I would look for long-biased trades as long as this stock is trending above its recent low of $52.50 a share and then once it breaks out above some near-term overhead resistance levels at $61.66 to $62.50 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 930,288 shares. If that breakout gets started soon, then this stock will set up to re-test or possibly take out its next major overhead resistance levels at its 20-day moving average of $68.30 to its 50-day moving average of $69.28, or even $73 a share.
Tenet Healthcare
One health care services player that insiders are in love with here is Tenet Healthcare (THC - Get Report), which primarily operates acute care hospitals and related healthcare facilities in the U.S. Insiders are buying this stock into relative weakness, since shares have dropped by 11.7% over the last three months.
Tenet Healthcare has a market cap of $4.5 billion and an enterprise value of $19 billion. This stock trades at a fair valuation, with a trailing price-to-earnings of 82.8 and a forward price-to-earnings of 17.6. Its estimated growth for this year is 54.2%, and for next year it's pegged at 17.6%. This is not a cash-rich company, since the total cash position on its balance sheet is $299 million and its total debt is $14.75 billion.
A beneficial owner just bought 500,000 shares, or about $24.19 million worth of stock, at $46.90 to $47 per share.
From a technical perspective, Tenet Healthcare 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, with shares moving lower from its high of $60.93 to its recent low of $45.86 a share. During that downtrend, shares of Tenet Healthcare have been consistently making lower highs and lower lows, which is bearish technical price action.
If you're bullish on Tenet Healthcare, then I would look for long-biased trades as long as this stock is trending above its recent low of $45.86 a share and then once it breaks out above some near-term overhead resistance levels $48.50 to its 200-day moving average of $50.34 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 1.87 million shares. If that breakout triggers soon, then this stock will set up to re-test or possibly take out its next major overhead resistance levels at its 20-day moving average of $52.30 to $53, or even its 50-day moving average of $55.17 a share.
RCM Technologies
One final stock with some large insider buying is staffing and outsourcing services player RCM Technologies (RCMT - Get Report), which designs, develops, and implements business and technology solutions to commercial and government sectors in the U.S., Canada, and Puerto Rico. Insiders are buying this stock into notable weakness, since shares have dropped by 18.9% over the last six months.
RCM Technologies has a market cap of $61 million and an enterprise value of $77 million. This stock trades at a cheap valuation, with a trailing price-to-earnings of 10.7. This is not a cash-rich company, since the total cash position on its balance sheet is $2.65 million and its total debt is $20 million.
A beneficial owner just bought 437,600 shares, or about $2.08 million worth of stock, at $4.76 per share. From a technical perspective, RCM Technologies is currently trending below both its 50-day and 200-day moving averages, which is bearish. This stock has been uptrending over the last few weeks, with shares moving higher from is low of $4.16 to its recent high of $5.10 a share. During that uptrend, shares of RCM Technologies have been making mostly higher lows and higher highs, which is bullish technical price action.
If you're bullish on RCM Technologies, then I would look for long-biased trades as long as this stock is trending above some near-term support levels at $4.50 or above its 52-week low of $4.16 a share and then once it breaks out above some near-term overhead resistance levels at $5.10 to its 50-day moving average of $5.28 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 23,722 shares. If that breakout develops soon, then this stock will set up to re-test or possibly take out its next major overhead resistance levels at $5.75 to its 200-day of $5.95, or even $6.15 to $6.50 a share.
By Roberto Pedone
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