One of my favorite pastimes is rummaging through SEC filings. I think any investor worth his salt should make this a hobby, because, like me, they will get a lot of solid tips from these filings. Among other filings, I particularly like to pay attention to Form 4 filings. This filing pertains to insider trading. SEC defines Insider Trading as any trade carried out by a company's directors or key employees. Though these insiders are not allowed to benefit from any trade based on the information that is not publicly available, they are allowed to trade in the stock on the basis of publicly available information. However, they are required to follow more rigorous procedures and are required to notify the SEC about their purchase within 2 days of the transaction. So how does this affect me as an investor? For starters, these transactions may provide a clue about the future course of action to be taken by the company and the stock.
Insiders may sell or buy stocks and both these transactions have their own significance. Today I am going to focus on Insider buying. Generally, it is a sign that you can expect the stock price to go high in the near future. Now, this near future may be as near as in a week or it may take a month or even longer. But still, any insider purchasing shows those in the know have confidence in their company. I have picked the following stocks, which saw significant insider purchases in the recent past and these purchases were made by none other than the company CEOs, inspiring even more confidence. However, Insider Purchase criterion should always be used in conjunction with other parameters, which may tip the balance, as shown by the following stocks:
Opko Health Inc. (OPK): The stock has been steadily accumulated by Philip Frost, the company CEO and chairman. Frost bought 75,000 shares on September 26, at the average price of $4.13. However, this is not the first purchase by Frost. According to the Form 4 filed by the company on September 24, the CEO had bought 150,000 of the company shares at the average price of $4.21.
If we look at the chart of the stock price, it does not inspire much confidence. The stock is almost stagnant and lost some of its value in recent times. It is still trading below its short-term 20-days EMA and long-term 50-days EMA. The company is collaborating with Bristol Myers (BMY) for developing a diagnostic test kit for Alzheimer. Another plus point in its favor is its drug candidate Rolapitant, which is in Phase III testing. While the pipeline looks promising, at the moment, the stock seems like a risky bet as these products are still a long time away from entering the market and earning profits for the company. So, while multiple insider purchases are generally a good sign, I like to corroborate this signal by checking other parameters as well and in the case of Opko Health, there does not seem to be a convincing case for building a position at the moment.
Zale Corporation (ZLC): This stock has shown some good movement in the recent past, breaching its $4 mark late last month. Its CEO Theo Killion bought 4000 shares at the average price of $6.306. The stock is clearly in the bullish phase as it is trading above its short-term 20-days EMA and long-term 50-days EMA prices and its CEO's current purchase shows that the upward momentum is likely to continue for the stock. Operating in the luxury retail segment, the company had been going through tough times. However, for the fiscal fourth quarter, the company reported a lower loss at $19.7 million and also announced a 7.9 percent increase in its revenue. Both company management and the street analysts have positive views about Zale's future. The stock has been upgraded to Buy rating by Northcoast Research. Its price target is set at $10, which seems quite achievable. Zale was also upgraded by Bank of America from Neutral to Buy.
Zale demands to be taken seriously for its strong momentum. Apart from getting the opportunity to ride the momentum, the stock shows solid fundamentals as well. The company enjoys rather liberal gross margins at about 51 percent. It has also made a turnaround and posted its first annual profit since 2008. Zale also announced an 8.3 percent sales increase in its same-store sales. The company is also curtailing its financing costs by restructuring its debts and loans. Combined with the current momentum, I am going to consider this stock a strong contender for inclusion in my portfolio.
Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.