Editors' Note: This article covers a micro-cap stock. Please be aware of the risks associated with these stocks.
By David Sterman
Does a rising tide lift all boats? No, but it does lift most of them.
Some stocks aren't getting much attention in this surging bull market, and it's often up to insiders to help these stocks get attention.
Here are three stocks with recent solid clusters of insider buying. (All data is courtesy of InsiderInsights.com.)
1. Calamos Asset Management (NASDAQ: CLMS)
I've come across this asset management firm on several occasions in recent months, as it has appeared on my screens regarding companies with share buybacks, strong free cash flow yields, solid dividend yields and a valuation near book value.
Now you can add insider buying to that list. Company founder John Calamos Sr., who launched the firm in the 1970s, has been actively buying shares for two straight months. In that time, he's picked up more than 300,000 shares at an average price of around $10.50 a share. That's boosted his entire ownership stake above 1.5 million shares, which now makes him the largest shareholder, along with Alpine Investment Management.
This buying comes after shares have slid 25% over the past two years, at a time when the S&P 500 has risen 25%. And you can chalk that underperformance up to a slump in Calamos' domestic stock funds, which has caused some investors to flee. Assets under management fell from $36 billion in March 2012 to $29 billion in March 2013. The heavy recent insider buying suggests that the bleeding has ended and that a pair of recently launched funds is gaining traction. Keep an eye out for these trends when quarterly results are released in early August, as the deep value metrics for this stock could help attract fresh investor attention.
2. Lionbridge Technologies (NASDAQ: LIOX)
"We need to grow and shrink." That was the seemingly mixed message put forth on a recent conference call by executives at Lionbridge. They were referring to the need to hire an outside executive to help drive top-line growth -- while also implementing plans to shave $5 million to $7 million from its cost structure.
You can understand their reasoning by glancing at Lionbridge's income statement. Sales of $457 million and operating income of $10 million were identical to figures posted back in 2007. Yet a look at this company's business model suggests that growth and operating margins should be more impressive.
Lionbridge provides a variety of language translation services to large enterprises. The company employs legions of bilingual translators to help with documents, meetings and other corporate functions and also provides automated language translation tools that companies can use on their websites. Considering the speed with which companies are entering new global markets. Lionbridge should be seeing strong demand. The company attributes the lack of sales growth to ongoing weakness in Europe, where major companies are holding back on discretionary spending.
If you dig into the transcript of Lionbridge's recent conference call, however, you'll see the seeds of a rebound. Microsoft (NASDAQ: MSFT), for example, is utilizing the company's services in many of its foreign markets as it rolls out Windows 8, which exemplifies the company's desire to get away from specific short-term one-off projects and instead participate in longer-term business development programs.
The bullish tone of the quarterly discussion was enough to spark the interest of Glenhill Capital, which began aggressively buying the stock in May and now owns more than 10% of the company, qualifying this investment management firm as an "insider."
To justify Glenhill's purchases, Lionbridge will need to start generating firmer profit margins, either through those planned cost cuts or through organic revenue growth. If margins do strengthen, many other investors will take note of the sub-$200 million market value for a firm that has a revenue base exceeding $400 million.
3. Synta Pharmaceuticals (NASDAQ: SNTA)
After plunging from $10 in April to a recent $5.20, insiders have been actively buying up shares of this cancer-focused biotech drug developer. The bulk of the purchases, representing seven different insiders and more than 2 million shares, have come in the $4.50 to $5 range.
Synta has been testing ganetespib, which targets non-small cell lung cancer (NSCLC). Shares tumbled after the release of Phase II testing that showed decent though unspectacular levels of efficacy. Biotech investors often need to see robust Phase II data if they are to stick around through several more years of clinical trials.
Yet the insider buying seems to corroborate the sentiment of several analysts that ganetespib still holds a great deal of promise, since it did extend patients' lives by several months and had a fairly solid safety profile.
"The bottom line is that this trial is not yet completed," noted analysts at MLV & Co. "We believe that this drug will eventually show substantial clinical benefit."
Later in the third quarter (or early in the fourth quarter), Synta is expected to reveal deeper data sets for the current Phase II trials, and presumably positive ongoing data regarding patient survival rates is the factor behind the strong level of insider buying.
Risks to Consider: These insiders appear to be pegging their hopes on improved data in coming months, and if that doesn't happen, shares will continue to languish.
Action to Take: We'll get a clear read on how these companies are progressing in coming months, but the recent heavy insider buying at each company could signal that the worst has passed and better days lie ahead.