Insider Buying Trends: Are These Cash Rich Companies Ready To Rally?

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 |  Includes: FOLD, HALO, INFI, JNS, NSPH, RPRX, SONS
by: Kapitall

Do you like to follow the trends of company insiders?

Insiders, naturally, work at the companies in question and have more knowledge about the firm than outsiders. When they put their own money on the line to purchase their company's shares it indicates they are bullish about the firm's future, and believe current share price is undervalued.

2013 is no different from 2009 when investors did not want to take a large amount of credit risk. The only difference is that balance sheets of companies appear healthier than 2009-2010. With that in mind, we looked for those companies with cash holdings that exceed more than 4 quarters of average operating expenses.

To refine the list, we collected data on insider buying, and identified the names that have seen bullishness from company executives, with net insider purchases representing at least 2% of share float. This left us with 7 companies on our list.

A Closer Look

Although we provide you a list of seven companies that show the strength of its balance sheet, here we focused on Sonus Networks Inc. (NASDAQ:SONS). As of September 30th, 2012, the company has cash and cash equivalents of $279 million, and long-term debt of $3 million in the form of convertible subordinated notes. The current portion of the convertible debt was $8 million. Given the strong liquidity of the company, paying off the short-term debt is not a risk.

A word of caution about the company: Revenues for quarter ended September 28th, 2012 were $57 million versus $66 million for quarter ended September 30th, 2011. Revenues have declined around 15% year-over-year while accounts receivables have increased by 5%. Do you think the insiders know something that the investors are ignoring?

The company is expected to report earnings on February 28th, 2013.

The List

For an interactive version of this chart, click on the image below. Analyst ratings sourced from Zacks Investment Research.

Inside management thinks these cash-rich companies are due for a rally--do you agree? Use this list as a starting point for your own analysis.

1. Amicus Therapeutics, Inc. (NASDAQ:FOLD): Focuses on the discovery, development, and commercialization of orally-administered, small molecule drugs for the treatment of various human genetic diseases.

  • Market cap at $187.49M, most recent closing price at $3.80.
  • Over the last six months, insiders were net buyers of 2,949,580 shares, which represents about 11.93% of the company's 24.73M share float. The top 2 holders of the stock are Glaxo Smithkline Plc., and New Enterprise Associates.
  • Average quarterly operating expense over the last five quarters at $18.6M, vs. most recent cash and short term investments at $106.22M, implies a Cash / Avg. Operating Expense ratio at 5.71.

2. Halozyme Therapeutics, Inc. (NASDAQ:HALO): Engages in the development and commercialization of recombinant human enzymes that transiently modify tissue under the skin to facilitate injection of other therapies or correct diseased tissue structures for clinical benefits.

  • Market cap at $754.03M, most recent closing price at $6.69.
  • Over the last six months, insiders were net buyers of 1,307,690 shares, which represents about 2.11% of the company's 61.98M share float. The top 2 holders of the stock are Randal Kirk, and Ian Frost.
  • Average quarterly operating expense over the last five quarters at $21.68M, vs. most recent cash and short term investments at $87.61M, implies a Cash / Avg. Operating Expense ratio at 4.04.

3. Infinity Pharmaceuticals, Inc. (NASDAQ:INFI): Engages in the discovery and development of medicines for the treatment of cancer and other conditions in the United States.

  • Market cap at $1.36B, most recent closing price at $34.45.
  • Over the last six months, insiders were net buyers of 5,158,726 shares, which represents about 19.81% of the company's 26.04M share float. The top 2 holders of the stock are Beacon Co., and Anthony Evnin.
  • Average quarterly operating expense over the last five quarters at $24.72M, vs. most recent cash and short term investments at $188.77M, implies a Cash / Avg. Operating Expense ratio at 7.64.

4. Janus Capital Group, Inc. (NYSE:JNS): Engages in asset management of public securities.

  • Market cap at $1.74B, most recent closing price at $9.30.
  • Over the last six months, insiders were net buyers of 6,158,290 shares, which represents about 3.37% of the company's 182.54M share float. The top 2 holders of the stock are Dai Ichi Life Insurance Company, and Daniel Coleman.
  • Average quarterly operating expense over the last five quarters at $157.54M, vs. most recent cash and short term investments at $725.6M, implies a Cash / Avg. Operating Expense ratio at 4.61.

5. Nanosphere, Inc. (NASDAQ:NSPH): Develops, manufactures, and markets a molecular diagnostics platform, the Verigene System that enables genomic and protein testing on a single platform.

  • Market cap at $157.61M, most recent closing price at $2.81.
  • Over the last six months, insiders were net buyers of 1,924,100 shares, which represents about 4.84% of the company's 39.72M share float. The top 2 holders of the stock are Brookside Capital Management, and Willliam Moffitt.
  • Average quarterly operating expense over the last five quarters at $9.66M, vs. most recent cash and short term investments at $41.92M, implies a Cash / Avg. Operating Expense ratio at 4.34.

6. Repros Therapeutics Inc. (NASDAQ:RPRX): Develops new drugs to treat hormonal and reproductive system disorders.

  • Market cap at $202.19M, most recent closing price at $11.81.
  • Over the last six months, insiders were net buyers of 557,500 shares, which represents about 4.53% of the company's 12.30M share float. The top 2 holders of the stock are Perceptive Advisors, and Michael Oliveira.
  • Average quarterly operating expense over the last five quarters at $3.36M, vs. most recent cash and short term investments at $29.58M, implies a Cash / Avg. Operating Expense ratio at 8.8.

7. Sonus Networks, Inc. : Provides voice and data infrastructure solutions for wireline and wireless telephone service providers.

  • Market cap at $637.3M, most recent closing price at $2.27.
  • Over the last six months, insiders were net buyers of 8,366,676 shares, which represents about 3.77% of the company's 222.15M share float. The top 2 holders of the stock are Empire Capital Management, and Todd Abbott.
  • Average quarterly operating expense over the last five quarters at $69.34M, vs. most recent cash and short term investments at $279.22M, implies a Cash / Avg. Operating Expense ratio at 4.03.

* Insider ownership information sourced from yahoo finance

Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.

Business relationship disclosure: Business relationship disclosure: Kapitall is a team of analysts. This article was written by Sabina Bhatia, one of our writers. We did not receive compensation for this article (other than from Seeking Alpha), and we have no business relationship with any company whose stock is mentioned in this article.