5 Stock Insiders are Gobbling Up
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, 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.
One biotechnology and drugs player that insiders are active in here is Merrimack Pharmaceuticals (MACK) . This company is discovering, developing and preparing to commercialize innovative medicines paired with companion diagnostics for the treatment of serious diseases, with an initial focus on cancer. Insiders are buying this stock into weakness, since shares are off by 25% during the last three months.
Merrimack Pharmaceuticals has a market cap of $628 million and an enterprise value of $562 million. This stock trades at a premium valuation, with a price-to-sales of 13.72 and a price-to-book of 50.66. Its estimated growth rate for the next quarter is 86.4%, and for next year it's pegged 41.3%. This is a cash-rich company, since the total cash position on its balance sheet is $86.67 million and its total debt is zero.