Bans on short-selling were introduced earlier this year to discourage speculative trading on financial institutions after Italian and French banking stocks took a beating last summer.Richard Drew/Associated Press
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 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 several stocks whose insiders have been doing some big buying per SEC filings.
ATP Oil & Gas
A couple of key insiders have started to snap up shares of ATP Oil & Gas , a company engaged in the acquisition, development and production of oil and natural gas properties in the Gulf of Mexico and the UK and Dutch sectors of the North Sea. Insiders are finding some deep value here since this stock is off by 60 per cent so far in 2011.
ATP Oil & Gas has a market cap of $344.58-million (U.S.) and an enterprise value of $2.18-billion. The company's estimated growth rate for this year is 29.7 per cent, and for next year it's pegged at 80.5 per cent. This is far from a cash-rich company, with a total cash position on its balance sheet of $172.18-million and total debt of over $2-billion.
The CEO and director bought 35,000 shares, or $204,750 worth of stock, at $5.85 per share on Nov. 15. On Nov. 16, this same CEO bought 30,000 shares, or $197,700 worth of stock, at $6.59 per share. Another director also bought 100,000 shares, or $649,000 worth of stock, at $6.49 per share.
From a technical standpoint, this stock is currently trading below both its 50-day and 200-day moving averages, which is bearish. This stock has actually been stuck in a nasty downtrend for the last six months with shares failing over and over again whenever it traders near its 50-day moving average. That said, this stock has bounced big twice since August whenever it collapsed below $6 a share. The stock is now starting to enter oversold territory, with its relative strength index showing a reading of 34.
If you're bullish on this stock, I would look to get long for a trade once it takes out Wednesday's high of $7.12 on heavy volume. Look for volume that's tracking in close to or above its three-month average of 2.22 million shares. This stock could easily bounce big back towards its 50-day of $9.62, so watch for any high-volume strength in the coming days or weeks.
It's worth mentioning that this stock is heavily shorted since 40 per cent of the tradable float is currently sold short by the bears.
Chesapeake Energy
Insiders are buying up a lot of stock in Chesapeake Energy , a producer of natural gas and oil and natural gas liquids in the U.S. This stock has virtually done nothing in 2011, with shares down by 1.74 per cent.
Chesapeake Energy has a market cap of $16.28-billion and an enterprise value of $28.97-billion. This stock trades at a cheap valuation; its trailing price-to-earnings is 12.81, and its forward price-to-earnings is just 10.10. Chesapeake's estimated growth rate for this year is -3.1 per cent and for next year it's pegged at -11.9 per cent. This is not a cash-rich company; it has a total cash position on its balance sheet of just $111-million, and its total debt is a whopping $11.84-billion.
A director just bought 100,000 shares, or $2.7-million worth of stock, at $26.69 per share.
From a technical standpoint, this stock is currently trading below both its 50-day and 200-day moving averages, which is bearish. This stock plunged from its August high of $35.64 to a recent low of $22.52. After hitting that low, the stock bounced and then formed a double top at close to $30 share, before dropping back to its current price of $25.48.
If you're bullish on this stock, I would look to be a buyer on the next high-volume move above some near-term overhead resistance at $26.85 a share. Look for volume that's tracking in close to or above its three-month average action of 12.74 million shares. If we get that move soon, I would then add to any long position once it moves above the 50-day of $27.69 with high volume. Look to play this for a run back toward $30 if the bulls move back into this name soon. Use a tight mental stop below $25 a share in case CHK isn't done going down yet.
Sprint Nextel
Insiders are snapping up shares of Sprint Nextel , which offers a range of wireless and wireline communications products and services for individual consumers, businesses, government subscribers and resellers. Insiders are again finding some deep value here; shares have lost over 30 per cent so far in 2011.
Sprint Nextel has a market cap of $8.54-billion and an enterprise value of $23.28-billion. The company's estimated growth rate for this year is 24.6 per cent, and for next year it's pegged at -25.6 per cent. This is far from a cash-rich company, with a total cash position on its balance sheet of $4-billion and total debt of $18.53-billion.
The CEO and president just bought 100,000 shares, or $281,580 worth of stock, at $2.82 per share.
From a technical standpoint, this stock is currently trading right at its 50-day moving average and below its 200-day moving average, which is natural trendwise. This stock was slammed from its July high of $5.75 to a recent low of $2.10 a share. Since hitting that low, the stock has started to form a more bullish chart pattern, with shares making higher highs and higher lows. The stock is now set up to trigger a breakout if a few overhead resistance levels can get taken out to the upside.
If you're bullish on this stock, I would look to a buyer once it trades above its 50-day of $2.92 and some overhead resistance at $2.95 a share on high volume. Look for volume that's tracking on close to or above its three-month average action of 68.71 million shares. I would use a tight stop near its recent low at $2.74 in case Sprint isn't ready soar higher just yet. Target a run back toward the mid-$3s or possibly the 200-day of $4.27 if the upside volume finally shows up on any future breakout.
RealD
A stock in the movie production complex whose insiders have bought up a lot of stock is RealD , which, together with its subsidiaries, licenses stereoscopic 3D technologies in the U.S., Canada and internationally. Once again, this is another name that insiders see value in since the shares have been hammered down over 60 per cent by the sellers in 2011.
RealD has a market cap of $542.32-million and an enterprise value of $515.21-million. The stock trades at a rich valuation, with a trailing price-to-earnings of 32.03 and forward price-to-earnings of 20.75. Its estimated growth rate for this year is 269 per cent, and for next year it's pegged at -2 per cent. This is barely a cash-rich company; its total cash position is $32.51-million, and its total debt is $25-million. After you back out the debt, RealD has $7.51-million in cash on its books.
The CEO and president just bought 105,815 shares, or about $1-million worth of stock, at $9.45 per share. Back in early August, a director also bought 9,500 shares, or $132,145 worth of stock, at $13.91 per share.
From a technical standpoint, this stock is currently trading below both its 50-day and 200-day moving averages, which I bearish. This stock is the poster child for a downtrending equity since all it's done since hitting its May high of $35.60 is plunge, making lower highs and lower lows. That said, the stock has found some buying interest in the last two months at around $8.75 to $8.55 a share.
If you're bullish on this stock, I would look to buy this for a trade if it can manage to move back above its 50-day moving average of $10.74 on high volume. Look for volume that's tracking in close to or above its three-month average action of 626,206 shares. If we get that move soon, I would then add to any long position once the stock takes out some past overhead resistance at $11.51 on solid volume. Look for a run back towards $13.30 or possibly even higher. I would use a tight mental stop below Wednesday's low of $9.43 if you take this trade.
This is a heavily shorted stock since the current short interest as a percentage of the float for RealD is 16.4 per cent. A tradable short-squeeze could easily be setting up if this stock can break out back above its 50-day in the near future. Remember, the shorts have cleaned up here, so unless they think it's going to zero, short-covering will happen to lock in some profits.
Cascade Microtech
Another stock whose insiders are very active is Cascade Microtech , which designs, develops, manufactures and markets wafer probing and test socket solutions for the electrical measurement and testing of chips. This is another name in which the "smart money" sees value since the stock is off by over 30 per cent so far this year.
Cascade Microtech has a market cap of $42.37-million and an enterprise value of $25.80-million. This stock trades at a cheap valuation, with a forward price-to-earnings of just 7.38. Cascade's estimated growth rate for this year is 51.4 per cent, and for next year it's pegged at 211.4 per cent.
This is a cash-rich company; it has a total cash position on its balance sheet of $15.11-million and total debt of zero.
A director just bought 75,000 shares, or $216,000 worth of stock, at $2.88 per share. Back in late August, this same director also bought 44,731 shares, or $174,000 worth of stock, at $3.80 to $3.96 per share.
From a technical standpoint, this stock is currently trading below both its 50-day and 200-day moving averages, which is bearish. This stock has been in defined downtrend for the past six months, where shares have been consistently making lower highs and lower lows.
That said, on Wednesday the stock saw one of its largest upside volume days since back in March. Over 221,000 shares traded which is well above its three-month average of 33,200 shares. The relative strength index was also below 30 before Wednesday, so we could have a situation where the stock is setting up to bounce off oversold levels.
If you're bullish on this name, I would look to buy it on a high-volume move over $3 and play it for a bounce back toward the 50-day of $3.57 or possibly much higher. Use a tight mental stop at around Wednesday's low of $2.62 in case this stock isn't done downtrending.