Insiders are the individuals that know a company better than anyone else. This group can include directors and officers of a company, or large investors owning 10% or more of the outstanding shares. They have a vested interest in the success of the company and, of course, they have a vested interest in the success of their portfolio.
This makes it potentially useful to monitor what insiders are buying and selling. Insiders are usually under no obligation to buy shares of the company they know so well. They could invest in any other publicly traded company.
That means when they buy shares in their own company, they are showing us, with their own money, that they believe the stock of that company offers the best value in the market. If it didn’t, they would be diversifying their portfolio into other companies.
Their buying also shows us that they believe now is a good time to buy. Remember, they are usually under no obligation to buy. When they do buy, it is possible that they are aware of a change in strategy or a new product or service that could be a catalyst for a higher stock price.
Because of the potential benefits of trading alongside insiders, we focused on recent insider buying in this week’s screen. We started with a list of companies with recent insider buying activity. Then we looked at buying a pullback within a longer term up trend. This is basically “buying dips,” a popular investment strategy.
Finally, we focused on stocks priced at less than $10 per share. The reason we like cheap stocks is because these are the ones that have been proven to be most likely to deliver large gains.
One study looked at how low priced, or cheap, stocks performed relative to more expensive stocks. The study found that cheap stocks delivered more than six times the average return of the more expensive stocks in a typical quarter.
One way to find stocks meeting these requirements is with the free stock screening tool available at FinViz.com. At this site, you could screen for a variety of fundamental factors, high levels of institutional ownership and bullish institutional transactions. An example is shown below.
Five Stocks Meet Our Strict Requirements
Remember, there is no guarantee any stock will increase in value. Also, it is important to remember when we search for stocks using quantitative measures, our goal is to identify stocks that meet those criteria. The screens we develop could be used as the cornerstone of long term investment strategies but any individual stock in the list could be a winner or loser.
CCUR Holdings, Inc. (Nasdaq: CCUR) does not have significant business operations. The company intends to identify opportunities to invest in or acquire one or more operating businesses. Previously, it was engaged in the content delivery and storage business.
This may sound like a vague strategy but insider buying on the recent dip in price indicates management may have found a potential deal.
Marchex, Inc. (Nasdaq: MCHX) operates as a mobile advertising analytics company.
Its products include Marchex Call Analytics, an analytics technology platform that provides data and insights to measure the performance of mobile, online, and offline advertising for advertisers and small business resellers; and Marchex Search Analytics, a product for search marketers that drive phone calls from search campaigns, as well as attributes inbound phone calls made directly from paid search ads and landing pages to a keyword.
The company also provides Marchex Display and Video Analytics, a product for marketers that buy digital display advertising, as well as measures the influence that display advertising has on inbound phone calls.
The company also offers Local Leads platform, a service advertising solution for small business resellers, such as Yellow Pages providers and vertical marketing service providers to sell call advertising, search marketing, and other lead generation products through their existing sales channels to small business advertisers.
In addition, it offers lead services, including pay-for-call, search marketing, and ad creation, as well as include features, such as call tracking, geo-targeting, campaign management, reporting, and analytics.
This stock appears to be breaking out of an extended basing pattern.
Insider buying, again, indicates the stock could be attractive at the recent price.
Bioanalytical Systems, Inc. (Nasdaq: BASI) provides drug discovery and development services, and analytical instruments for pharmaceutical, biotechnology, academic, and government organizations in the United States, rest of North America, the Pacific Rim, Europe, and internationally.
The Contract Research Services segment offers screening and pharmacological testing, preclinical safety testing, formulation development, regulatory compliance, and quality control testing services.
It also provides in vivo sampling services for the continuous monitoring of chemical changes in life; preclinical and pathology services; product characterization, method development, and validation; bioanalytical testing to measure drug and metabolite concentrations in complex biological matrices; stability testing to establish and confirm product purity, potency, and shelf life; and climate-controlled archiving services for its customers’ data and samples.
The Research Products segment offers analytical products comprising liquid chromatographic and electrochemical instruments with associated accessories; in vivo sampling products consisting of Culex family of automated in vivo sampling and dosing instruments; and Vetronics’ products.
The chart shows that insider activity appears to be a signal that the recent selloff is overdone.
Barnwell Industries, Inc. (NYSE: BRN) acquires, develops, produces, and sells oil and natural gas in Canada. It holds working interests in oil and natural gas properties located in Alberta, Saskatchewan, and British Columbia.
The company also invests in land interests in Hawaii. In addition, it owns and operates four water well drilling rigs, two pump rigs, and other ancillary drilling and pump equipment; drills water and water monitoring wells of various depths; installs and repairs water pumping systems; and distributes Floway pumps and equipment in Hawaii.
Further, the company develops luxury residences for sale in Hawaii.
These are diversified business operations, but all potentially profitable. The stock trades at about 10% above its book value while a typical stock at a 60% premium to its book value. The chart shows a breakout from a multi-year basing pattern, a potentially bullish indicator.
MagnaChip Semiconductor Corporation (NYSE: MX) designs, manufactures, and sells analog and mixed-signal semiconductor products for consumer, computing, communication, industrial, automotive, and Internet of Things applications worldwide.
The company operates through two segments, Foundry Services Group, and Standard Products Group. It provides display solutions, including source and gate drivers and timing controllers that cover a wide range of flat panel displays used in ultra-high definition (UHD), high definition (HD), light emitting diode (LED), 3D and OLED televisions and displays, notebooks, and mobile communications and entertainment devices.
The company also offers e-Compass sensors, digital hall sensors, and temperature and humidity sensors, as well as power management products and consumer appliances.
In addition, it offers foundry services to fabless analog and mixed-signal semiconductor companies and IDMs for the manufacture of display and LED drivers, audio encoding and decoding devices, microcontrollers, touch screen controllers, RF switches, park distance control sensors for automotive, electronic tag memories, and power management semiconductors.
The stock has been in volatile up trend for some time.
The company is expected to report earnings per share of about $1 in each of the next three years. That means the stock is priced at less than half the industry average price to earnings (P/E) ratio of 21.
Any of these stocks could be a potential winner and all worth further research. For those unsure of their ability to dedicate the time to researching the market, the TradingTips.com service, PPK System, is designed to exploit patterns associated with market clues by looking for value and momentum in stocks.
This combination of value and momentum has been shown by many researchers to be the cornerstone of strategies that beat the market in the long run. The PPK System follows strict rules for buying and selling. You can learn more about this trading service by clicking here.