Insider activity is often worth observing. While such activity is not a pure indicator of when to buy or sell a stock, it is a good starting point upon which to perform analysis, or a method of validating analysis already performed. Insider activity might provide an accurate profile of business prospects, based on the insiders' knowledge of the company and industry. No matter what, insider activity is important news that the market must acknowledge and that press should publicize, like this.
Many investors hear the term "insider trading" and immediately assume illegal conduct. In fact, insiders such as officers, directors, and beneficial owners may legally buy and/or sell stock in their organizations, provided they do not do so based upon privileged information and that they report their trades to the SEC within two business days.
The following four companies all have market valuations between $1-2 billion and experienced strong insider activity in 2011. All reported that over the last six months insiders purchased between two and four percent of their respective company’s floats.
Auxilium Pharmaceuticals Inc. (AUXL)
- Industry: Drug Related - Biopharmaceuticals
- Market Cap: $1.02 billion
- Insider Activity: Insiders purchased over 2% of the company’s float.
- Note: Short interest is approximately 24%
Saks Incorporated (SKS)
- Industry: Department Stores
- Market Cap: $1.65 billion
- Insider Activity: Insiders purchased about 4% of the retailer’s float.
- Note: Short interest is over 25%
The Hain Celestial Group, Inc. (HAIN)
- Industry: Processed & Packaged Goods
- Market Cap: $1.42 billion
- Insider Activity: Insiders purchased over 3% of the company’s float.
- Note: Short interest is approximately 7.8%
Webster Financial Corp. (WBS)
- Industry: Regional Banks - Norheast
- Market Cap: $1.75 bilion
- Insider Activity: Insiders purchased almost 3% of the company’s float.
- Note: Short interest is approximately 8.1%
Take these insider buys with a grain of salt. While many insiders seem to know what they are doing, many have lost money and also might even consider their insider purchase highly speculative. Additionally, several of these companies have significant short positions, indicating that many individuals in the market strongly disagree with this insider sentiment.