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, 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.
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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 at five stocks insiders have been doing some big buying in per SEC filings.
Restoration Hardware
One stock that insides are loading up on here is home furnishings retailer Restoration Hardware (RH). Insiders are buying this stock into big time strength, since shares are up sharply in 2013 by 94%.
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Restoration Hardware has a market cap of $2.5 billion and an enterprise value of $2.6 billion. This stock trades at a reasonable valuation, with a forward price-to-earnings of 30.23. Its estimated growth rate for this year is 45.5%, and for next year it's pegged at 25.9%. This is not a cash-rich company, since the total cash position on its balance sheet is $8.20 million and its total debt is $134.49 million.
A director just bought 15,400 shares, or about $1 million worth of stock, at $64.97 per share. Another director also just bought 7,875 shares, or about $497,000 worth of stock, at $63.10 to $63.31 per share.
From a technical perspective, RH is currently trending above its 200-day moving average and just below its 50-day moving average, which is neutral trendwise. This stock has been uptrending a bit over the last few weeks, with shares moving higher from its low of $60.15 to its recent high of $68.12 a share. During that move, shares of RH have been making mostly higher lows and higher highs, which is bullish technical price action. That move has now started to push shares of RH within range of triggering a near-term breakout trade.
If you're bullish on RH, then I would look for long-biased trades as long as this stock is trending above some near-term support at $64 or at $62.37 and then once breaks out above some near-term overhead resistance levels at $68.12 a share to its 50-day moving average at $69.87 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 1.05 million shares. If that breakout hits soon, then RH will set up to re-test or possibly take out its next major overhead resistance levels at $74 to $77 a share. Any high-volume move above those levels will then give RH a chance to re-test or possibly take out its 52-week high at $78.50 a share.
EV Energy Partners
Another stock that insiders are snapping up a large amount of stock in here is EV Energy Partners (EVEP), which is engaged in the development and production of oil and natural gas properties. Insiders are buying this stock into notable weakness, since shares are down by 38% in 2013.
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EV Energy Partners has a market cap of $1.6 billion and an enterprise value of $2.7 billion. This stock trades at a reasonable valuation, with a forward price-to-earnings of 26.06. Its estimated growth rate for this year is 5.3%, and for next year it's pegged at 466.70%. This is not a cash-rich company, since the total cash position on its balance sheet is $10.64 million and its total debt is $1.08 billion. This stock currently sports a dividend yield of 9%.
The chairman of the board just bought 150,000 shares, or about $4.81 million worth of stock, at $32.08 per share.
From a technical perspective, EVEP is currently trending below both its 50-day and 200-day moving averages, which is bearish. This stock has been uptrending a bit for the last few weeks, with shares moving higher from its low of $30.53 to its recent high of $34.63 a share. During that move, shares of EVEP have been consistently making higher lows and higher highs, which is bullish technical price action. That move has now pushed shares of EVEP within range of triggering a near-term breakout trade.
If you're in the bull camp on EVEP, then I would look for long-biased trades as long as this stock is trending above some near-term support levels at $33 or at $32, and then once it breaks out above its 50-day moving average of $34.64 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 336,170 shares. If that breakout hits soon, then EVEP will set up to re-test or possibly take out its next major overhead resistance levels at $39 to $41 a share.
EOG Resources
One energy player that insiders are in love with here is EOG Resources (EOG), which engages in the exploration, development, production and marketing of natural gas and crude oil. Insiders are buying this stock into strength, since shares jumped higher by 37% in 2013.
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EOG Resources has a market cap of $45 billion and an enterprise value of $50 billion. This stock trades at a reasonable valuation, with a trailing price-to-earnings of 40.87 and a forward price-to-earnings of 18.44. Its estimated growth rate for this year is 44.1%, and for next year it's pegged at 10.8%. This is not a cash-rich company, since the total cash position on its balance sheet is $1.32 billion and its total debt is $6.32 billion
A director just bought 6,000 shares, or about $1.01 million worth of stock, at $168.61 per share.
From a technical perspective, EOG is currently trending above its 200-day moving average and just below its 50-day moving average, which is neutral trendwise. This stock has been uptrending a bit for the last few weeks, with shares moving higher from its low of $156.01 to its recent high of $169.84 a share. During that uptrend, shares of EOG have been consistently making higher lows and higher highs, which is bullish technical price action. That move has started to push shares of EOG within range of triggering a big breakout trade.
If you're bullish on EOG, then I would look for long-biased trades as long as this stock is trending above some near-term support at $165, and then once it breaks out above some near-term overhead resistance levels at $169.84 to its 50-day at $171.07 and then above more resistance at $172.20 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 1.92 million shares. If that breakout hits soon, then EOG will set up to re-test or possibly take out its next major overhead resistance levels at $185 to its 52-week high at $188.30 a share.
Amtrust Financial Services
One insurance player that insiders are very active in here is Amtrust Financial Services (AFSI), a multinational specialty property and casualty insurer focused on generating consistent underwriting profits. Insiders are buying this stock into decent strength, since shares are up 19% in 2013.
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Amtrust Financial Services has a market cap of $2.3 billion and an enterprise value of $2.7 billion. This stock trades at a cheap valuation, with a trailing price-to-earnings of 8.73 and a forward price-to-earnings of 8.90. Its estimated growth rate for this year is 22.2%, and for next year it's pegged at 13.6%. This is not a cash-rich company, since the total cash position on its balance sheet is $508.27 million and its total debt is $935.25 million. This stock currently sports a dividend yield of 1.8%.
A director just bought 300,000 shares, or about $8.69 million worth of stock, at $28.99 per share. A beneficial owner also just bought 500,000 shares, or about $15.12 million worth of stock, at $30.25 per share.
From a technical perspective, AFSI is currently trending below both its 50-day and 200-day moving averages, which is bearish. This stock recently plunged sharply lower from its high of $42.64 to its recent low of $27.90 a share. During that drop, shares of AFSI have been making mostly lower highs and lower lows, which is bearish technical price action. That drop for AFSI has now pushed the stock into oversold territory, since its current relative strength index reading is 33.19. Oversold can always get more oversold, but it's also an area where a stock can make a powerful bounce higher from.
If you're bullish on AFSI, then I would look for long-biased trades as long as this stock is trending above its recent low of $27.90 and then once it takes out Tuesday's intraday high of $31.40 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 volume of 867,166 shares. If we get that move soon, then AFSI could bounce sharply higher towards its next major overhead resistance levels at its 200-day moving average of $34.82 or its 50-day moving average at $38.40 a share.
GulfMark Offshore
One final name with some large insider buying is GulfMark Offshore (GLF), which provides offshore marine services to companies involved in offshore exploration and production of oil and natural gas. Insiders are buying this stock into solid strength, since shares are up 35% in 2013.
GulfMark Offshore has a market cap of $1.2 billion and an enterprise value of $1.6 billion. This stock trades at a cheap valuation, with a trailing price-to-earnings of 30.40 and a forward price-to-earnings of 10.53. Its estimated growth rate for this year is 146.1%, and for next year it's pegged at 76.1%. This is not a cash-rich company, since the total cash position on its balance sheet is $38.18 million and its total debt is $500.90 million. This stock currently sports a dividend yield of 2.2%.
A officer just bought 51,739 shares, or about $2.31 million worth of stock, at $44.19 per share.
From a technical perspective, GLF is currently trending above its 200-day moving average and below its 50-day moving average, which is neutral trendwise. This stock has been downtrending badly for the last two months, with shares moving lower from its high of $53.59 to its recent low of $43.82 a share. During that downtrend, shares of GLF have been making mostly lower highs and lower lows, which is bearish technical price action. That said, shares of GLF have now started to rebound off that $43.82 low and it's starting to trend back above its 200-day moving average at $46.12 a share.
If you're bullish on GLF, then look for long-biased trades as long as this stock is trending above its 200-day at $46.12 or above $45 and then once it takes out some near-term overhead resistance at $47 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 180,522 shares. If we get that move soon, then GLF will set up to re-test or possibly take out its next major overhead resistance levels at its 50-day moving average of $49.19 or at $52 a share. Any high-volume move above those levels will then give GLF a chance to re-test or possibly take out its 52-week high at $53.89 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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