The Trend Is Your Friend: High Momentum Stocks Seeing Insider Buying

Many investors assume that by the time a stock starts to soar, they've already missed their chance to turn a profit. But in fact, it's often okay to be a little tardy to the party. Sometimes, stocks continue trending upwards even after their good news has been priced in -- meaning investors can buy high to sell even higher.

This investment philosophy, known as momentum trading, has historically outperformed the widely-espoused "buy low, sell high" strategy. So why does it work? Because investors are, by and large, an emotional lot, and their behavior usually runs contrary to conventional investing wisdom.

Which means they have a hard time staying away from a good rally -- everyone wants in, and no one wants to be left out. When this happens, a stock's price can be pushed well beyond its fair market value. So momentum investors who bought high still have time to cash in on the profits.

Momentum strategies have tended to see the best results in strong markets. So if you think 2011 is going to be a banner year on Wall Street, it may be worth taking a closer look at these ideas.

To compile the list, we created a universe of 140 stocks that have seen strong gains over the last quarter. Additionally, all of these companies have had positive earnings and sales growth over the last five years. We then narrowed down the list by only focusing on those stocks that have seen insider buying over the last three months.

If you're a momentum investor, use this list as a starting point for your own analysis. (Click here to access free, interactive tools to analyze these ideas.)

Insider trading data sourced from AOL Money. The list has been sorted by performance over the last quarter.

Company

Industry

Performance Over Last Quarter

Insider Trends

InterMune (Nasdaq: ITMN  )

Biotechnology

173.89%

Scott Seiwert (Officer) bought $110,247 worth of stock on 11/2

Skilled Healthcare Group (NYSE: SKH  )

Long-Term Care Facilities

127.92%

Insiders like Jonathan Monks (Officer), Shane Peck (Officer), William Scott (Director), and Michael Boxer (Director) collectively bought $1.17M worth of stock between 11/4 - 11/17

First Industrial Realty Trust (NYSE: FR  )

Industrial REIT

78.05%

Insiders like John Rau (Director) and Patrick Hackett (Director) collectively bought $561,603 worth of stock between 11/30 - 12/14

General Moly (NYSE: GMO  )

Industrial Metals & Minerals

76.09%

Gregory Raih (Director) bought $145,950 worth of stock on 10/19

Dillard's (NYSE: DDS  )

Department Stores

58.35%

Robert Bradley Martin (Director) bought $148,145 worth of stock on 11/16

THQ (Nasdaq: THQI  )

Multimedia & Graphics Software

50.75%

Insiders like Gary Rieschel (Director) and Brian Farrell (CEO) collectively bought $259,630 worth of stock between 9/3 - 11/26

Akorn (Nasdaq: AKRX  )

Diagnostic Substances

50.25%

Insiders like Steven Meyer (Director) and Alan Weinstein (Director) collectively bought $132,483 worth of stock between 11/12 - 12/13

TechTarget (Nasdaq: TTGT  )

Internet Information Providers

49.34%

Bruce Levenson (Director) bought $414,856 worth of stock on 9/7

Interactive Chart: Press Play to compare analyst ratings for all the stocks mentioned above. Analyst ratings sourced from Zacks.


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

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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 Report this Comment icon found on every comment.

  • Report this Comment On January 04, 2011, at 11:09 PM, barleygaylord wrote:

    Eben?

    really? are you in the tank for this company- $110K purchase? and you forgot to mention the CEO sold $14MM worth of stock? Cmon there are 2 sides on every fence, you need to be a little more prudent in your research

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