Insiders buy the stocks they do because they have information that indicates the stock is going to increase in value. They know they are going to be able to buy low and sell high. When multiple insiders are buying a particular stock, then you know there is something about it that is going to lead to an increase in value. In fact, studies have shown that the stocks insiders buy outperform the market by 7 percent annually.
As for when an insider buys a stock, the purchase typically occurs when all indicators state that the stock should be sold rather than held or purchased. This shows that the insider has a lot of confidence in the stock that they are buying. If more than one insider invests in that stock, then it is very obvious that there is a great deal of confidence in the prospective performance of that stock.
What Are the Insiders Buying?
Of the most popular stocks that insiders love are health and energy stocks. These are two industries that are not expected to falter any time in the near future. Because we all need energy every day and we need our health, it is understandable why these two industries do so well. That is why it is good to know which health and energy stocks the insiders are flocking to.
1. Synageva Biopharma (GEVA)
Synageva Biopharma is a pharmaceutical company that is in the development stage. They are in the process of developing drugs that target rare medical conditions and diseases, such as lysosomal acid lipase deficiency. The company is currently not making a profit because it is a company in the development stage. Its losses are expected to increase in 2013, but Baker Brothers Advisors purchased 8.4 million shares at the end of 2012 for their health care-based fund. This shows that they speculate the stock will see a major increase when its drugs hit the market.
2. Cyberonics (CYBX)
A number of insiders have purchased shares of Cyberonics. The primary product this company has created and markets is its VNS Therapy System, which is a nerve stimulation system. In its fiscal quarter that ended in October, Cyberonics reported double-digit growth. Their bottom line even increased by 50%. During the third quarter of 2012, Renaissance Technologies bought 1.6 million shares.
3. Haemonetics (HAE)
Some would say to steer clear of Haemonetics and maybe they’re right, but some of the insiders have been buying small quantities of shares since November 2012. The company has had revenue growth, but earnings were down as of September. However, there are many analysts that say that this stock is going to see a great recovery in a few quarters, which explains why insiders are buying this one in bites while it is low.
4. Valeant Pharmaceuticals (VRX)
Valeant Pharmaceuticals has been among the top picks for such names as Jeffrey Ubbens and Viking Global. Revenues for this company have been looking good, but earnings have decreased. With it being a $20 billion market cap pharmaceutical company, there is a lot of optimism coming from insiders that earnings will once again increase. This has made it worth the research on whether or not it can grow and stabilize.
5. Halcon Resources (HK)
A number of insiders have been holding Halcon Resources close. This oil and gas exploration and production company had a grim 2012, however. Many of the insiders hold the belief that negative reactions to reducing natural gas prices led to the 30% dive last year. Increases in production have been positive, but earnings have been suffering. Nonetheless, insiders are still purchasing because they anticipate a bounce back.
6. Key Energy Services (KEG)
Key Energy Services saw a number of insider stock purchases in November. Due to the fact that this company has ties to drilling, revenues are steady as earnings are down due to natural gas prices. Analysts are expecting a recovery, however.
7. Weatherford International (WFT)
Like Kay Energy Services, Weatherford International is tied to drilling. Analysts are predicting that Weatherford is going to see several years of growth, which has insiders flocking to buy shares. Earnings have been down, but that seems to be having little bearing on predictions regarding its future performance.
8. Apache (APA)
Apache is a well-known name in natural gas because it is one of the market leaders. Just like most natural gas companies, it struggled in the earnings arena in 2012 due to prices. Its net income fell over 80% at the end of the quarter in 2012. However, insiders are purchasing. Diamond Hill Capital and Eagle Capital are two funds that have reported owning more than $100 million of Apache’s stocks.
9. Basic Energy Services (BAS)
Insiders are so confident about this stock that they paid prices last year that are dollars above what the stock is going for as of the time of this writing. There is doubt as to whether or not this stock will surge this year, as the company is expected to be unprofitable in 2013. Because many investors and analysts consider the shares to be overvalued, around 20% of the shares are being held short. When compared to historical performance, the share prices are still considered low and, if Basic takes a positive turn in the near future, those buying what is considered overvalued now could see more money in their portfolio.
These are none stocks that the insiders are running toward. Whether or not they are good investments will depend upon whether or not the companies can increase their earnings. Knowing whether or not a stock is determined through good research, which consists of analyzing earnings, what the company is doing to increase their earnings, the status of their revenue, and historical data on share price. Most of the time, however, it is best to buy when news of an innovative product or service comes to light because, once the rest of the investor world gets wind that a pharmaceutical company is developing a miracle drug or natural gas prices are going back up, everyone will want to buy low so they can cash out high and that will increase share prices quickly.