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.
A 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, 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 some stocks where insiders have been doing some big buying in per SEC filings.
1. Cirrus Logic
One stock whose insiders are doing some large buying is Cirrus Logic , which is a developer of high-precision, analog and mixed-signal integrated circuits for a range of audio and energy markets. This stock has been pretty much dead money in 2011, with shares up by around 1.8 per cent. That said, insiders are stepping up and buying stock here after the stock gapped down big this month from $17 (U.S.) to under $14 a share.
That large gap down in price was due to the company's reporting disappointing results for its latest quarter and issuing a cautious outlook. Since that gap down, the stock has rallied back and now trades just over $16 a share.
Cirrus Logic has a market cap of $1.05-billion and an enterprise value of $819.91-million. The stock trades at a cheap valuation, with a trailing price-to-earnings of 6.5 and a forward price-to-earnings of 11.71. Cirrus Logic's estimated growth rate for this year is -4 per cent, and for next year it's pegged at 16.8 per cent. This is a cash-rich company, with a total cash position on its balance sheet of $139.40-million and total debt of zero.
A director just bought 132,000 shares, or about $2-million worth of stock, at $15.21 per share. The president and CEO also just bought 6,500 shares, or $96,980 worth of stock, at $14.92 per share.
From a technical standpoint, this stock is currently trading above its 50-day moving average and below its 200-day moving average, which is neutral trendwise. The stock jumped sharply on Wednesday by over 9 per cent on above-average volume. Volume registered 4.1 million shares, which is well above its three-month average volume of 2.6 million shares.
If you're bullish on this stock, I would look to be a buyer on some significant weakness since it spiked so much Wednesday. It's important to know that this stock has been trading range-bound for the past couple of months between $18.50 on the upside and $13 on the downside. Once could look to buy this stock closer to the lower end of that range if we get and significant weakness in the near future. Or you can buy the breakout once it takes out $18.35 to $18.50 a share on solid volume. Don't buy the middle of the range unless you're simply trading it intraday for quick pops.