6 Beaten-Up Stocks Being Snapped Up by Insiders

By Eben Esterhuizen and Alicia Sellitti, Kapitall | More Articles
September 16, 2010 | Comments (4)

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When a stock continues to underperform the market for an extended period of time, some investors may write it off as a lost cause. But before you relegate a company to your portfolio junk bin, you may want to see who's still buying it. A stock may look like it's down for the count -- but if it's seeing a spike in insider buying, it might very well be poised for a rally.

Think about it -- insiders have an intimate knowledge of their companies, and unlike us, know what's going on inside the boardroom. So if they're buying at current levels, they may consider their stock to be undervalued.

Any time management starts snapping up stock, consider the possibility that the market may be overly pessimistic about the company's prospects. And when insiders buy in spite of overall bearishness about the stock, contrarian investors will surely take notice.

Contrarians prey on the weakness of a crowd -- namely, its tendency to get carried away by hype, be it positive or negative. Knowing that this type of emotional investing skews the market's valuation of a stock, contrarians look for more reliable indicators of a company's actual financial health -- and insider buying of beaten-down stocks is one of those contrarian green lights.

In short, don't be so quick to dismiss underperforming stocks -- there may very well be a mint to be made. Here's a list of the ones seeing insider buying, sorted by annual performance:

Company	Insider(s)	Trade	Annual Stock Performance
Neutral Tandem (Nasdaq: TNDM )	Rian J. Wren (President & CEO), Robert Junkroski (Chief Financial Officer & EVP), and David Lopez (Senior Vice President of Sales)	The three of them bought $115,380 on Sept. 14	-58.82%
SWS Group (NYSE: SWS )	Michael A. Moses (Director)	Bought $22,230 on Sept. 10	-46.50%
Spartech (NYSE: SHE )	Jackson Robinson (Director) and Walter Klein (Director)	The two of them bought $118,600 on Sept. 13	-40.17%
Bank Mutual (Nasdaq: BKMU )	Michael W Dosland (Senior Vice President-CFO) and Michael T Crowley (Chairman and CEO)	The two of them bought $57,837 between Sept. 10-14	-37.67%
MELA Sciences (Nasdaq: MELA )	Martin D Cleary (Director)	Bought $26,600 on Sept. 10	-36.89%
Metro Bancorp (Nasdaq: METR )	Gary Nalbandian (President/CEO)	Bought $23,715 on Sept. 10	-33.14%

Interactive Chart: Press the Play button to see how analyst ratings for all the stocks mentioned above have changed over the past two years …

Kapitall's Eben Esterhuizen, CFA, and Alicia Sellitti do not own shares of any companies mentioned.

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The Fool owns shares of MELA Sciences and Neutral Tandem. Try any of our Foolish newsletter services free for 30 days. True to its name, The Motley Fool is made up of a motley assortment of writers and analysts, each with a unique perspective; sometimes we agree, sometimes we disagree, but we all believe in the power of learning from each other through our Foolish community. The Motley Fool has a disclosure policy.

Read/Post Comments (4) | Recommend This Article (11)

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Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment icon found on every comment.

Report this Comment On September 16, 2010, at 2:12 PM, jrusso9722 wrote:

I'll stay long with MELA. Non-invasive, 95% accurate in trials, looks beneath the skin, can chart the entire body for 3 month, 6month, checkups. If a routine X-Ray shows a nodule in the body, what do they do? They order an MRI, or a CAT SCAN. It's all about imaging a lesion for a better view. Nothing is 100% foolproof, but Melanoma is a sure fire KILLER...if not caught early, MelaFind catches Melanoma early. If any relatives of the FDA Review Panel had suspicious lesions, or Melanoma, they would want "an FDA Panel" to approve in November 2010.
Report this Comment On September 16, 2010, at 2:14 PM, pondee619 wrote:

Were these purchases made on the open market, an exercise of employment related options, otherwise related to employment or some other type of transaction? Are these amounts net of any recent sales?
Isn't knowing: "Bought $22,230 on Sept. 10" only part of the story? Wouldn't the price paid per share be helpful in determining if this transaction is indicitive of anything important?
Can a fool provide us with a complete story?
Report this Comment On September 16, 2010, at 3:30 PM, jrusso9722 wrote:

Hello pondee619,
The insider trading report shows Mr. Cleary paid 6.65 per share. Can you go to AOL Money Finance, click on MELA, and over to the right, under commentary, hopefully you can locate it. Regards, Joe
Report this Comment On September 16, 2010, at 3:35 PM, jrusso9722 wrote:

SEC Filing, Insider Buy and Sell on 91/13/10. pondee619, hope it helps.

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