5 Stocks Insiders Love Right Now
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.
Insiders are doing some active buying in SandRidge Energy (SD) , which, together with its subsidiaries, operates as an independent natural gas and oil company in the U.S. Insiders are buying into some slight weakness here since the stock is off by around 4% so far in 2012.
SandRidge Energy has a market cap of $3.12 billion and an enterprise value of $5.81 billion. This stock trades at a premium valuation, with a trailing price-to-earnings of 60.31 and a forward price-to-earnings of 19.60. Its estimated growth rate for this year is 2,300%, and for next year it's pegged at 66.7%. This is far from a cash-rich company, since the total cash position on its balance sheet is $207.96 million and its total debt is a whopping $2.82 billion.