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Based on my experience, following the trades of the insiders of public companies can be highly profitable. There have been studies showing that when insiders accumulate a stock intensively, the stock can be expected to outperform the market during the next six months.

Intensive insider buying can be defined by the following three criteria:

  1. The stock is purchased by three or more insiders within one month.
  2. The stock is sold by no insiders in the month of intensive purchasing.
  3. At least two purchasers increase their holdings by more than 10 percent.

In this article, I will feature three stocks that met these three criteria of intensive insider buying during the last 30 days.

1. Compass Diversified Holdings (NYSE:CODI) is a public investment firm specializing in acquiring controlling stakes in small to middle market companies.

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Insider buys

  • Mark Lazarus purchased 3,869 shares on December 31 and currently holds 17,113 shares, or less than 0.1% of the company. Mr. Lazarus is a Director of Compass Group Diversified Holdings LLC, Sponsor of the Trust.
  • Eugene Ewing purchased 3,869 shares on December 31 and currently holds 33,163 shares, or less than 0.1% of the company. Mr. Ewing is a Director of Compass Group Diversified Holdings LLC, Sponsor of the Trust.
  • Harold Edwards purchased 3,869 shares on December 31 and currently holds 47,161 shares, or less than 0.1% of the company. Mr. Edwards is a Director of Compass Group Diversified Holdings LLC, Sponsor of the Trust.
  • Sean Day purchased 5,227 shares on December 31 and currently controls 575,782 shares, or 1.2% of the company. Mr. Day is Chairman of the Board of Directors of Compass Group Diversified Holdings LLC, Sponsor of the Trust.
  • Gordon Burns purchased 17,869 shares on December 7-31 and currently controls 182,437 shares of the company. Mr. Burns is a Director of Compass Group Diversified Holdings LLC, Sponsor of the Trust.

Financials

The company reported the third-quarter financial results on November 7 with the following highlights:

Net income$6.4 million
Quarterly dividend$0.36 per share
Cash$20.0 million
Debt$262.3 million

My analysis

The stock has a $18 price target from the Point and Figure chart. There have been eight insider buy transactions and there have not been any insider sell transactions during the last 30 days. The stock is trading at a forward P/E ratio of 9.28 and has a 9.58% dividend yield. The company has a book value of $9.03 per share. I have a bullish bias for the stock currently based on the fundamental and technical picture.

2. Markel Corporation (NYSE:MKL) markets and underwrites specialty insurance products in the United States and internationally.

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Insider buys

  • Debora Wilson purchased 1,000 shares on December 31 and currently holds 2,340 shares, or less than 0.1% of the company. Debora Wilson serves as a director of the company.
  • Douglas Eby purchased 155 shares on December 31 and currently holds 560 shares, or less than 0.1% of the company. Douglas Eby serves as a director of the company.
  • Anne Waleski purchased 200 shares on December 31 and currently holds 3,882 shares, or less than 0.1% of the company. Anne Waleski is Vice President and Chief Financial Officer of the company.
  • Thomas Gayner purchased 100 shares on December 31 and currently holds 34,491 shares, or 0.3% of the company. Thomas Gayner is President and Chief Investment Officer of the company.

Financials

The company reported the third-quarter financial results on November 8 with the following highlights:

Revenue$765.8 million
Net income$49.7 million
Book value$395.48 per share

Competition

Markel Corporation's competitors include CNA Financial Corporation (NYSE:CNA), Meadowbrook Insurance Group (NYSE:MIG) and The Travelers Companies (NYSE:TRV). Here is a table comparing these companies:

CompanyMKLCNAMIGTRVIndustry
Market Cap:4.23B7.88B298.16M28.01B2.74B
Employees:5,4007,6001,05430,6002.61K
Qtrly Rev Growth (yoy):0.130.130.140.020.02
Revenue:2.88B9.37B921.65M25.64B2.49B
Gross Margin:0.420.250.000.300.23
EBITDA:489.89M1.43B-19.13M4.84B317.10M
Operating Margin:0.140.14-0.030.160.11
Net Income:240.29M832.00M-16.70M2.76BN/A
EPS:24.863.08-0.337.001.74
P/E:17.709.49N/A10.4811.09
PEG (5 yr expected):2.382.38-1.260.951.38
P/S:1.470.840.321.090.80

Markel Corporation's gross margin is above the industry average.

My analysis

The stock tanked on December 19 after the company announced the acquisition of Alterra for $3.13 billion. There have been four insider buy transactions, and there have not been any insider sell transactions during the last 30 days. The insider buys were made after the Alterra acquisition announcement. The stock is trading at a P/E ratio of 17.71 and a forward P/E ratio of 22.07. I have a neutral bias for the stock currently based on the mixed fundamental and technical picture.

3. Palatin Technologies (NYSEMKT:PTN) is a biopharmaceutical company developing targeted, receptor-specific peptide therapeutics for the treatment of diseases with significant unmet medical need and commercial potential. The company's programs are based on molecules that modulate the activity of the melanocortin and natriuretic peptide receptor systems.

The company's primary product in development is bremelanotide for the treatment of female sexual dysfunction (FSD). In addition, Palatin has development programs or drug candidates for erectile dysfunction, pulmonary diseases, heart failure, obesity and inflammatory diseases.

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Insider buys

  • Carl Spana purchased 10,000 shares on December 31 and currently holds 207,341 shares, or 0.5% of the company. Dr. Spana, co-founder of Palatin, has served as president and chief executive officer since 2000.
  • Stephen Wills purchased 10,000 shares on December 28 and currently holds 193,942 shares, or 0.5% of the company. Mr. Wills joined Palatin as vice president and chief financial officer in 1997.
  • Joseph Hull purchased 2,000 shares on December 24 and currently holds 2,000 shares, or less than 0.1% of the company. Mr. Hull has been a director of the company since September 2005.
  • Zola Horovitz purchased 10,000 shares on December 24 and currently holds 10,500 shares, or less than 0.1% of the company. Dr. Horovitz has been a director of the company since February 2001.
  • Robert deVeer purchased 21,960 shares on December 14 and currently controls 37,160 shares, or less than 0.1% of the company. Mr. deVeer has been a director of the company since November 1998.

Financials

The company reported the first quarter fiscal year 2013 financial results on November 14 with the following highlights:

Revenue$0.004 million
Net loss$10.5 million
Cash$33.5 million

The increase in net loss for the quarter ended September 30, 2012 compared to the same period last fiscal year,was mainly attributable to a non-cash, non-operating expense of $7.1 million, which represented the increase in fair value of the warrants, which were previously liability classified until the increase in the company's authorized shares.

Outlook

Palatin believes that its existing capital resources will be adequate to fund its currently planned operations, including completing analysis of results of the company's Phase 2B clinical trial with bremelanotide for FSD, submitting an end-of-phase 2 meeting request to the FDA, and commencing Phase 3 activities, through at least calendar year 2013.

Pipeline

Palatin has a diverse pipeline of active development programs targeting melanocortin and natriuretic receptors, including products for treatment of sexual dysfunction, congestive heart failure, obesity and metabolic syndrome.

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Risk factors

The company expects to sell additional equity securities, and may sell additional securities at a discount to the market price. Any future sales of equity will dilute the holdings of existing stockholders, possibly reducing the value of their investment.

The company's product candidates are at various stages of research and development, will require regulatory approval, and may never be successfully developed or commercialized. The company's product candidates will require significant further research, development and testing before the company can seek regulatory approval to market and sell them.

The company may raise additional funds through public or private equity financings, debt financings, collaborative arrangements on its product candidates or other sources. However, additional funding may not be available on acceptable terms, or at all.

My analysis

There have been five insider buy transactions, and there have not been any insider sell transactions during the last 30 days. On November 8, 2012, Palatin reported positive top-line results, including the successful achievement of statistical significance for the primary endpoint and key secondary endpoints in its Phase 2B clinical trial evaluating the efficacy and safety of bremelanotide for treatment of female sexual dysfunction. The company will be presenting the results of bremelanotide Phase 2b female sexual dysfunction study in more detail at investor and scientific conferences in the first quarter of 2013. I currently have a long position in the stock.

Source: 3 Stocks With Recent Intensive Insider Buying