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.
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At the end of the day, its 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 five stocks whose insiders have been doing some big buying per SEC filings.
Epizyme
One stock that insides are buying a ton of stock in here is Epizyme (EZPM), which discovers, develops and plans to commercialize personalized therapeutics for patients with genetically defined cancers. Insiders are buying this stock into weakness, since shares are off by 15.5% so far in 2013.
Epizyme has a market cap of $551 million and an enterprise value of $400 million. This stock trades at a premium valuation, with a price-to-sales of 13.13 and a price-to-book of 6.18. Its estimated growth rate for next year is 61.1%. This is a cash-rich company, since the total cash position on its balance sheet is $139.57 million and its total debt is zero.
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A beneficial owner just bought 406,500 shares, or about $8 million worth of stock, at $19.04 to $19.31 per share.
From a technical perspective, EPZM is currently trending well below its 50-day moving average, which is bearish. This stock has been downtrending badly for the last month and change, with shares dropping from its high of $42.71 to its recent low of $18.10 a share. During that move, shares of EPZM have been consistently making lower highs and lower lows, which is bearish technical price action. That move has now pushed shares of EPZM into oversold territory, since its current relative strength index reading is 22.11.
If you're bullish on EPZM, then I would look for long-biased trades as long as this stock is trending above its recent low of $18.10 and then once breaks out above some key near-term overhead resistance at $20.97 a share with high volume. Look for a sustained move or close above that level with volume that hits near or above its three-month average action of 213,057 shares. If that breakout hits soon, then EPZM will set up for an oversold bounce that could take the stock back towards $24 to $26 a share.
Lumos Networks
Another wireless telecom player that insiders are in love with here is Lumos Networks (LMOS), which provides broadband, voice and IP services through fiber optic network. Insiders are buying this stock into big time strength, since shares are up a whopping 132% so far in 2013.
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Lumos Networks has a market cap of $510 million and an enterprise value of $770 million. This stock trades at a premium valuation, with a trailing price-to-earnings of 32.08 and a forward price-to-earnings of 24.33. Its estimated growth rate for the next quarter is -20%, and for next year it's pegged at 10.6%. This is not a cash-rich company, since the total cash position on its balance sheet is $58.07 million and its total debt is $380.71 million. This stock currently sports a dividend yield of 2.8%.
A beneficial owner just bought 205,000 shares, or above $4.1 million worth of stock, at $20 per share.
From a technical perspective, LMOS is currently trending above both its 50-day and 200-day moving averages, which is bullish. This stock has been uptrending strong for the last two months and change, with shares moving higher from its low of $14.88 to its recent high of $24.72 a share. During that uptrend, shares of LMOS have been making mostly higher lows and higher highs, which is bullish technical price action. That move has now pushed shares of LMOS within range of triggering a near-term breakout trade.
If you're in the bull camp on LMOS, then I would look for long-biased trades as long as this stock is trending above is 50-day at $21.33 and then once it breaks out above some near-term overhead resistance levels at $24 to its all-time high at $24.72 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 106,894 shares. If that breakout hits soon, then LMOS will set up to enter new all-time high territory, which is bullish technical price action. Some possible upside targets off that breakout are $30 to $33 a share.
Synta Pharmaceuticals
A biopharmaceutical player that insiders are loading up on here is Synta Pharmaceuticals (SNTA), which is engaged in discovering, developing and commercializing small molecule drugs to extend and enhance the lives of patients with severe medical conditions such as cancer and chronic inflammatory diseases. Insiders are buying this stock into big time weakness, since shares are down by 42% so are in 2013.
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Synta Pharmaceuticals has a market cap of $358 million and an enterprise value of $262 million. This stock trades at a premium valuation, with a price-to-book of 24.76. Its estimated growth rate for this year is -18.9%, and for next year it's pegged at 11.1%. This is a cash-rich company, since the total cash position on its balance sheet is $53.38 million and its total debt is $23.51 million.
A director just bought 5 million shares, or about $18.75 million worth of stock, at $3.75 per share. Another director also just bought 150,000 shares, or $562,500 worth of stock, at $3.75 per share.
From a technical perspective, SNTA is currently trending below both is 50-day and 200-day moving averages, which is bearish. This stock has been uptrending for the last few weeks, with shares soaring higher from its low of $3.70 to its intraday high of $5.57 a share. During that uptrend, shares of SNTA have been consistently making higher lows and higher highs, which is bullish technical price action. That move has now pushed shares of SNTA within range of triggering a near-term breakout trade.
If you're bullish on SNTA, then I would look for long-biased trades as long as this stock is trending above $4.50 or $4.25 and then once it takes out Wednesday's high of $5.57 to its 50-day moving average at $5.79 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 1.46 million shares. If that breakout triggers soon, then SNTA will set up to re-test or possibly take out its next major overhead resistance levels at $7.10 to $7.30 a share, or even $7.85 a share.
Mellanox Technologies
One semiconductor player that insiders are active in here is Mellanox Technologies (MLNX), which produces and supplies semiconductor interconnect products that facilitate efficient data transmission between servers, storage systems and communications infrastructure equipment and other embedded systems. Insiders are buying this stock into notable weakness, since shares are down by 32% so far in 2013.
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Mellanox Technologies has a market cap of $1.7 billion and an enterprise value of $1.4 billion. This stock trades at a fair valuation, with a trailing price-to-earnings of 609.70 and a forward price-to-earnings of 23.69. Its estimated growth rate for this year is -74.4%, and for next year it's pegged at 84.8%. %. This is a cash-rich company, since the total cash position on its balance sheet is $295.55 million and its total debt is just $3.13 million.
A director just bought 57,739 shares, or about $1.99 million worth of stock, at $34.64 per share.
From a technical perspective, MLNX 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 a bit for the last month, with shares moving higher from its low of $32.35 to its recent high of $41.32 a share. During that uptrend, shares of MLNX have been consistently making higher lows and higher highs, which is bullish technical price action. That move has now pushed shares of MLNX within range of triggering a big breakout trade.
If you're bullish on MLNX, then I would look for long-biased trades as long as this stock is trending above its 50-day at $37.19, and then once it breaks out above some near-term overhead resistance levels at $41.32 to $42.45 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 846,143 shares. If that breakout hits soon, then MLNX will set up to re-test or possibly take out its next major overhead resistance levels $47 to its 200-day moving average at $47.23 a share. Any high-volume move above those levels will then give MLNX a chance to tag $50 a share.
Inovio Pharmaceuticals
One final name with some decent insider buying is Inovio Pharmaceuticals (INO), which is focused on the development of next-generation vaccines to prevent or treat cancers and chronic infectious diseases. Insiders are buying this stock into massive strength, since shares are up a whopping 328% so far in 2013.
Inovio Pharmaceuticals has a market cap of $443 million and an enterprise value of $370 million. This stock trades at a premium valuation, with a price-to-sales of 31.11 and a price-to-book of 6.49. Its estimated growth rate for this year is -121.4, and for next year it's pegged at 64.5%. This is a cash-rich company, since the total cash position on its balance sheet is $46.17 million and its total debt is zero.
A director just bought 254,500 shares, or about $463,000 worth of stock, at $1.82 per share.
From a technical perspective, INO is currently trending above both its 50-day and 200-day moving averages, which is bullish. This stock has been trending sideways and consolidating for the last month, with shares moving between $1.63 on the downside and $2.19 on the upside. Traders should now keep an eye on shares of INO for a possible breakout trade if this stock can manage to take out the upper-end of its recent range.
If you're bullish on INO, then look for long-biased trades as long as this stock is trending above some near-term support at $1.86 or at $1.70, and then once it breaks out above some near-term overhead resistance at $2.19 a share with high volume. Look for a sustained move or close above that level with volume that hits near or above its three-month average action of 6.39 million shares. If that breakout triggers soon, then INO will set up to re-test or possibly take out its next major overhead resistance levels at $2.39 to $2.54 a share, or even $2.92 to its 52-week high at $3.03 a share. Any high-volume move above $3.03 will then give INO a chance to tag $4 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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At the time of publication, author had no positions in stocks mentioned.
Roberto Pedone, based out of Delafield, Wis., is an independent trader who focuses on technical analysis for small- and large-cap stocks, options, futures, commodities and currencies. Roberto studied international business at the Milwaukee School of Engineering, and he spent a year overseas studying business in Lubeck, Germany. His work has appeared on financial outlets including
CNBC.com and Forbes.com. You can follow Pedone on Twitter at www.twitter.com/zerosum24 or @zerosum24.
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