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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.

The List

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. To create the list below we looked for those companies with cash holdings that exceed more than 4 quarters of average operating expenses. Theoretically, these firms can better withstand market drops.

We then 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 4 companies on our list.

A Closer Look

We looked at Sonus Networks (NASDAQ:SONS) in more detail. The stock is trading around $2.39 versus its 52-week high of $3, down 20% in the past 1-year. On February 28th, 2013, the company announced earnings for quarter ended December 31st, 2012 of $75 million which fell short of the consensus estimate of $79 million. Also, the company guided down first quarter 2013 earnings to $60-$62 million.

What is impressive is that a challenging top-line growth is accompanied by a strong balance sheet with cash and marketable securities of $249 million.

Gross margins have continued to decline with 47.4% at the end of quarter ended December 2012 versus 56.9% in September 2012, and 63.7% in December 2011.

Do you think the strong cash position will save the company?

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. Aegerion Pharmaceuticals, Inc. (NASDAQ:AEGR): Engages in the development and commercialization of novel therapeutics to treat severe lipid disorders.

  • Market cap at $1.06B, most recent closing price at $37.09.
  • Over the last six months, insiders were net buyers of 624,767 shares, which represents about 2.93% of the company's 21.29M share float. The 2 top holders of the stock are Perceptive Advisors, and Alison Kiley.
  • Average quarterly operating expense over the last five quarters at $12.64M, vs. most recent cash and short term investments at $95.46M, implies a Cash / Avg. Operating Expense ratio at 7.55.

2. Janus Capital Group, Inc. (NYSE:JNS): Offers individual investors and institutional clients asset management services.

  • Market cap at $1.83B, most recent closing price at $9.59.
  • Over the last six months, insiders were net buyers of 30,846,700 shares, which represents about 16.49% of the company's 187.06M share float. The 2 top holders of the stock are Dai Ichi Life Insurance Co., and Richard Weil.
  • Average quarterly operating expense over the last five quarters at $157.54M, vs. most recent cash and short term investments at $737.5M, implies a Cash / Avg. Operating Expense ratio at 4.68.

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

  • Market cap at $658.17M, most recent closing price at $2.34.
  • Over the last six months, insiders were net buyers of 5,167,016 shares, which represents about 2.18% of the company's 237.52M share float. The 2 top holders of the stock are Empire Capital Management, and Raymond Dolan.
  • 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.

4. Targacept, Inc. (NASDAQ:TRGT): Engages in the design, discovery, and development of novel Neuronal Nicotinic Receptors (NNR) Therapeutics for the treatment of diseases and disorders of the central nervous system.

  • Market cap at $147.21M, most recent closing price at $4.38.
  • Over the last six months, insiders were net buyers of 2,023,840 shares, which represents about 8.88% of the company's 22.80M share float. The 2 top holders of the stock are Investment 10 LLC., and BVF Partners.
  • Average quarterly operating expense over the last five quarters at $19.02M, vs. most recent cash and short term investments at $184.93M, implies a Cash / Avg. Operating Expense ratio at 9.72.

* Insider ownership information sourced from Yahoo Finance

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