DELAFIELD, Wis. (
Stockpickr) -- Corporate insiders sell their own companies' stock for a number of reasons.
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.
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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, it's 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 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.
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General Electric
One stock that insiders are active in here is
General Electric (GE - Get Report), which operates as an infrastructure and financial services company worldwide. Insiders are buying this stock into decent strength, since shares have trended higher by 13.7% over the last three months.
General Electric has a market cap of $273 billion and an enterprise value of $608 billion. This stock trades at a reasonable valuation, with a forward price-to-earnings of 17.5. Its estimated growth rate for this year is -21.8%, and for next year it's pegged at 20.2%. This is not a cash-rich company, since the total cash position on its balance sheet is $13.5 billion and its total debt is $351.40 billion. This stock currently sports a dividend yield of 3.7%.
A director just
bought 20,000 shares, or about $543,000 worth of stock, at $ 27.15 per share. Another director also just
bought 20,000 shares, or about $538,000 worth of stock, at $26.93 per share.
From a technical perspective, GE is currently trending above both its 50-day and 200-day moving averages, which is bullish. This stock has been consolidating and trending sideways for the last few weeks, with shares moving between $26.55 on the downside and around $27 a share on the upside. This sideways trend is coming after shares of GE recently gapped up sharply higher from $25 to $28.68 a share with heavy upside volume flows.
If you're bullish on GE, then I would look for long-biased trades as long as this stock is trending above that recent low of $26.55 and then once it breaks out above some near-term overhead resistance levels at $27.50 to $28 a share with high volume. Look for a sustained move or close above those levels with volume that registers near or above its three-month average volume of 45.58 million shares. If that breakout triggers soon, then GE will set up to re-test or possibly take out its next major overhead resistance level at its 52-week high of $26.68 a share.
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Travelers
Another stock that insiders are loading up on here is
Travelers (TRV - Get Report), which provides a range of commercial and personal property, and casualty insurance products and services to businesses, government units, associations and individuals in the U.S. and internationally. Insiders are buying this stock into modest strength, since shares have moved up by 3.9% over the last six months.
Travelers Companies has a market cap of $33 billion and an enterprise value of $34 billion. This stock trades at a reasonable valuation, with a trailing price-to-earnings of 9.6 and a forward price-to-earnings of 10.9. Its estimated growth rate for this year is -11.1%, and for next year it's pegged at 1.4%. This is not a cash-rich company, since the total cash position on its balance sheet is $4.74 billion and its total debt is $6.35 billion. This stock currently sports a dividend yield of 2%.
A director just
bought 2,100 shares, or about $216,000 worth of stock, at $103.06 per share.
From a technical perspective, TRV is currently trending above its 200-day moving average and 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 $100.83 to its recent high of $105.40 a share. During that uptrend, shares of TRV have been making mostly higher lows and higher highs, which is bullish technical price action. That move has now pushed shares of TRV within range of triggering a near-term breakout trade.
If you're in the bull camp on TRV, then I would look for long-biased trades as long as this stock is trending above Tuesday's intraday low of $102.74 or above $102 a share and then once it breaks out above some near-term overhead resistance at $105.40 a share with volume that hits near or above its three-month average action of 2.10 million shares. If that breakout begins soon, then TRV will set up to re-test or possibly take out its next major overhead resistance levels at its 50-day moving average of $106.97 to $109 a share, or even $110 a share.
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