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Who knows a company better than anyone else? The insiders, of course. This is why analysts and investors look at insider stock buying trends to get a feel for how those who know the company best view their company's prospects.

Insiders include members of the board and upper management, and because they represent a small group of investors, insider purchases representing 2%+ of share float are considered high. Therefore, we began our screen by finding those stocks with net insider purchases representing at least 2% of share float.

We then screened these insider stock picks to find those that also appear undervalued relative to EPS trends. Assuming that P/E is equal to a constant k, increases in EPS estimates should be matched by proportionate increases in price - when they don't match up, a mispricing may have occurred. We screened for stocks seeing significantly higher increases in EPS estimate than changes in price over the last month.

Interactive Chart: Press Play to compare changes in market cap over the last two years for the stocks mentioned below. Analyst ratings sourced from Zacks Investment Research.

Do you think these stocks deserve the optimism of their insiders? Use this list as a starting point for your own analysis.

1. Assured Guaranty Ltd. (AGO): Provides credit enhancement products to the public finance, structured finance, and mortgage markets in the United States and internationally. Market cap at $3.02B. Price at $16.53. Net insider purchases over the last six months at 3.87M which is 2.40% of the company's 160.91M share float. The EPS estimate for the company's current year increased from 2.89 to 2.95 over the last 30 days, an increase of 2.08%. This increase came during a time when the stock price changed by -7.96% (from 17.71 to 16.3 over the last 30 days).

2. Federal-Mogul Corp. (FDML): Supplies powertrain and safety technologies worldwide. Market cap at $1.70B. Price at $17.00. Net insider purchases over the last six months at 1.14M which is 5.09% of the company's 22.46M share float. The EPS estimate for the company's current year increased from 2.04 to 2.06 over the last 30 days, an increase of 0.98%. This increase came during a time when the stock price changed by -1.47% (from 17.64 to 17.38 over the last 30 days).

3. ViroPharma Inc. (VPHM): Engages in the development and commercialization of products that address serious diseases with a focus on products used by physician specialists or in hospital settings in the United States and internationally. Market cap at $2.13B. Price at $30.76. Net insider purchases over the last six months at 2.02M which is 3.06% of the company's 66.12M share float. The EPS estimate for the company's current year increased from 1.59 to 1.67 over the last 30 days, an increase of 5.03%. This increase came during a time when the stock price changed by -5.48% (from 31.74 to 30 over the last 30 days).

*Insider and EPS data sourced from Yahoo! Finance, all other data sourced from Finviz.

Source: 3 Insider Stocks Picks Undervalued By EPS/Price Mismatches