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.
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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 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.
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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.
American Apparel
One apparel and accessories player that insiders are snapping up a huge amount of stock in here is American Apparel (APP), which designs, manufactures, distributes, retails and sells branded fashion basic apparel products and clothing and accessories for women, men, children and babies. Insiders are buying this stock into major weakness, since shares are down sharply by 33% in 2014.
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American Apparel has a market cap of $142 million and an enterprise value of $402 million. This stock trades at a reasonable valuation, with a price-to-sales of 0.24. Its estimated growth rate for this year is 71.9%, and for next year it's pegged at 66.7%. This is not a cash-rich company, since the total cash position on its balance sheet is $16.68 million and its total debt is $251.10 million.
A beneficial owner just bought 25.9 million shares, or about $19.86 million worth of stock, at 77 cents per share.
From a technical perspective, APP is currently trending above its 50-day moving average and below its 200-day moving average, which is neutral trendwise. This stock recently exploded higher from its low of 51 cents per share to its high of $1 a share. Since making that sharp move to the upside, shares of APP have started to cool off and move back below its 200-day moving average of 92 cents per share.
If you're bullish on APP, then I would look for long-biased trades as long as this stock is trending above 78 cents per share or 75 cents per share and then once it breaks out above its 200-day at 92 cents per share to more key overhead resistance levels at $1 to $1.05 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 5.07 million shares. If that breakout hits soon, then APP will set up to re-test or possibly take out its next major overhead resistance levels at $1.45 to $1.52, or even $1.65 a share.
For more on American Apparel, read 3 Huge Stocks on Traders' Radars and American Apparel Is in a Race for Survival.
Forbes Energy Services
Another stock that insiders are jumping into here is Forbes Energy Services (FES), an independent oilfield services contractor. Insiders are buying this stock into strength, since shares have trended higher by 42% so far in 2014.
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Forbes Energy Services has a market cap of $100 million and an enterprise value of $371 million. This stock trades at a premium valuation, with a forward price-to-earnings of 78. Its estimated growth rate for this year is 60.9%, and for next year it's pegged at 124%. This is not a cash-rich company, since the total cash position on its balance sheet is $24.19 million and its total debt is $297.14 million.
A beneficial owner just bought 114,000 shares, or about $514,000 worth of stock, at $4.50 per share.
From a technical perspective, FES 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 six months, with shares moving higher from its low of $2.93 to its recent high of $4.69 a share. During that uptrend, shares of FES have been making mostly higher lows and higher highs, which is bullish technical price action. That move has now pushed shares of FES within range of triggering a major breakout trade.
If you're in the bull camp on FES, then I would look for long-biased trades as long as this stock is trending above its 50-day at $4.21 or above its 200-day at $3.99 and then once it breaks out above some near-term overhead resistance levels at $4.69 to its 52-week high at $5.31 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 volume of 38,744 shares. If that breakout triggers soon, then FES will set up to enter new 52-week-high territory above $5.31, which is bullish technical price action. Some possible upside targets off that breakout are $6 to $7 a share.
Town Sports International
One sports center player that insiders are loading up on here is Town Sports International (CLUB), which owns and operates fitness clubs in the Northeast and Mid-Atlantic regions of the U.S. Insiders are buying this stock into big time weakness, since shares off by 53% so far in 2014.
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Town Sports International has a market cap of $163 million and an enterprise value of $395 million. This stock trades at a premium valuation, with a trailing price-to-earnings of 38 and a forward price-to-earnings of 76. Its estimated growth rate for this year is -119.6%, and for next year it's pegged at 200%. This is not a cash-rich company, since the total cash position on its balance sheet is $76.17 million and its total debt is $314.87 million. This stock currently sports a large dividend yield of 11.1%.
A beneficial owner just bought 353,614 shares, or about $2.19 million worth of stock, at $5.98 to $6.21 per share. That same beneficial owner also just bought 28,000 shares, or about $184,000 worth of stock, at $6.60 per share.
From a technical perspective, CLUB is currently trending above its 50-day moving average and well below its 200-day moving average, which is neutral trendwise. This stock recently formed a triple bottom chart pattern at $5.70, $5.65 and $5.69 a share. Following that bottom, shares of CLUB have started to uptrend and move back above its 50-day moving average. That move has now pushed shares of CLUB within range of triggering a big breakout trade.
If you're bullish on CLUB, then I would look for long-biased trades as long as this stock is trending above its 50-day at $6.27 or $6 or above those triple bottom support levels and then once it breaks out above some near-term overhead resistance levels at $7 to $7.12 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 236,137 shares. If that breakout materializes soon, then CLUB will set up to re-test or possibly take out its next major overhead resistance levels at $8 to $8.50, or even $9.36 a share. Any high-volume move above $9.36 will then give CLUB a chance to re-fill some of its previous gap-down-day zone from February that started at $10.50 a share.
For more on CLUB, check out check out One Big Investor Loves This Small Stock -- Should You?.
Accelerate Diagnostics
One health care player that insiders are snapping up a significantly amount of shares in here is Accelerate Diagnostics (AXDX), which focuses on developing and commercializing instrumentation for the rapid identification and antibiotic susceptibility testing of infectious pathogens. Insiders are buying this stock into massive strength, since shares have ripped to the upside in 2014 by a whopping 116%.
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Accelerate Diagnostics has a market cap of $1.1 billion and an enterprise value of $1.2 billion. This stock trades at premium valuation, with a price-to-book of 28.60. This is a cash-rich company, since the total cash position on its balance sheet is $38.56 million and its total debt is $267,000.
A beneficial owner just bought 20,000 shares, or about $514,000 worth of stock, at $25.72 per share. A director also just bought 10,000 shares, or about $260,000 worth of stock, at $26.09 per share.
From a technical perspective, AXDX 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 six months, with shares moving higher from its low of $11.01 to its recent high of $31.86 a share. During that uptrend, shares of AXDX have been consistently making higher lows and higher highs, which is bullish technical price action. That move has now pushed shares of AXDX within range of triggering a near-term breakout trade.
If you're bullish on AXDX, then I would look for long-biased trades as long as this stock is trending above some near-term support at $25 or above its 50-day at $22.99 and then once it breaks out above some near-term overhead resistance levels at $28 to $30 a share and above its 52-week high at $31.86 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 198,465 shares. If that breakout kicks off soon, then AXDX will set up to enter new 52-week-high territory above $31.86, which is bullish technical price action. Some possible upside targets off that breakout are $45 to $40, or even $45 a share.
T. Rowe Price Group
One final stock with some decent insider buying is T. Rowe Price Group (TROW), a publicly owned asset management holding company. Insiders are buying this stock into modest strength, since shares are up 2.3% over the last six months.
T. Rowe Price Group has a market cap of $22 billion and an enterprise value of $20 billion. This stock trades at a reasonable valuation, with a trailing price-to-earnings of 20 and a forward price-to-earnings of 16. Its estimated growth rate for this year is 16.9%, and for next year it's pegged at 10.5%. This is a cash-rich company, since the total cash position on its balance sheet is $1.79 billion and its total debt is zero. This stock currently sports a dividend yield of 2.1%.
A director just bought 4,500 shares, or about $374,000 worth of stock, at $83.32 per share.
From a technical perspective, TROW 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 month and change, with shares moving higher from its low of $78.16 to its recent high of $85.40 a share. During that uptrend, shares of TROW have been consistently making higher lows and higher highs, which is bullish technical price action. That move has now pushed shares of TROW within range of triggering a near-term breakout trade.
If you're bullish on TROW, then look for long-biased trades as long as this stock is trending above some near-term support at $83 or above its 50-day at $81.77 and then once it breaks out above its 52-week high at $85.40 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 1.21 million shares. If that breakout gets underway soon, the TROW will set up to enter new 52-week-high territory, which is bullish technical price action. Some possible upside targets off that breakout are $95 to $100 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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