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 diversificationpurposes, 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.
Xenoport
One biopharmaceutical stock that insiders are loading up on here is Xenoport (XNPT - Get Report) , which focuses on developing and commercializing a portfolio of product candidates for the treatment of neurological and other disorders. Insiders are buying this stock into large weakness, since shares have dropped by 29.7% over the last six months.
A beneficial owner just bought 4,883,761 shares, or about $18.91 million worth of stock, at $3.76 to $3.92 per share.
From a technical perspective, Xenoport is currently trending below both its 50-day and 200-day moving averages, which is bearish. This stock has been uptrending a bit over the last few weeks, with shares moving higher off its low of $3.70 a share to its intraday high on Tuesday of $4.43 a share. During that uptrend, shares of Xenoport have been making mostly higher lows and higher highs, which is bullish technical price action. That move has now pushed this stock within range of triggering a near-term breakout trade.
If you're bullish on Xenoport, then I would look for long-biased trades as long as this stock is trending above some near-term support levels at $4 or above its recent low of $3.70 a share and then once it breaks out above its 20-day moving average of $4.50 a share to some more key resistance around $4.75 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 938,954 shares. If that breakout takes hold soon, then this stock will set up to re-test or possibly take out its next major overhead resistance levels at its 50-day moving average of $4.98 to $5.25, or even $5.30 to around $5.70 a share.
Seattle Genetics
Another biotechnology player that insiders are adding a ton of stock in here is Seattle Genetics (SGEN - Get Report) , which develops and commercializes antibody-based therapies for the treatment of cancer. Insiders are buying this stock into big weakness, since shares have dropped sharply by 28.3% over the last six months.
Seattle Genetics has a market cap of $4.1 billion and an enterprise value of $3.4 billion. This stock trades at a premium valuation, with a price-to-sales of 12.68 and a price-to-book of 6.21. Its estimated growth rate for this year is -5.4%, and for next year it's pegged at 22.4%. This is a cash-rich company, since the total cash position on its balance sheet is $649.65 million and its total debt is zero.
A director just bought 1,001,471 shares, or about $29.67 million worth of stock, at $29.20 to $30.21 per share.
From a technical perspective, Seattle Genetics is currently trending below both its 50-day and 200-day moving averages, which is bearish. This stock has been uptrending a bit over the last few weeks, with shares moving higher off its low of $26.02 to its recent high of $32.80 a share. During that uptrend, this stock has been making mostly higher lows and higher highs, which is bullish technical price action. That move has now pushed shares of Seattle Genetics within range of triggering a near-term breakout trade above some key overhead resistance levels.
If you're in the bull camp on Seattle Genetics, then I would look for long-biased trades as long as this stock is trending above some near-term support at $29.09 a share or above more support around $28 a share and then once it breaks out above its 20-day moving average of $31.23 a share to some more key resistance levels at $32.80 to $34.36 a share with volume that hits near or above its three-month average action of 1.25 million shares. If that breakout materializes soon, then this stock will set up to re-test or possibly take out its next major overhead resistance levels at its 50-day moving average of $36.60 to around $38.50, or even its 200-day moving average of $41.99 a share.
