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When insiders buy shares on the open market, their companies could enjoy bullish times ahead. Corporate insiders often have the inside track on their companies' prospects, and often have significant exposure to the company's stock through options or restricted shares that are part of their compensation. Besides, insiders probably wouldn't risk plowing too much of their own money into their own company's stock -- reducing their portfolio's diversity, and increasing its risk -- unless they think the stock will rise.
With that in mind, I screened for companies where at least one insider made an open-market buy in the last 30 days. These two semiconductor stocks made the list:
Net Number of Buys
No. of Shares Bought
|MEMC Electronic Materials (NYSE: WFR )||9||231,473||$1,270,000||$1,560|
|Micrel (Nasdaq: MCRL )||4||39,500||$376,000||$596|
Source: Capital IQ, a division of Standard & Poor's, as of Aug. 10, 2011.
When it comes to the number and total value of insider open-market buys, more can be better; I've sorted this table accordingly. Insiders at MEMC made open-market purchases worth $1,270,000, while insider buys at Micrel were worth a still substantial, but less head-turning, $376,000.
Both are bullish signs, but the purchase of MEMC looks more promising. MEMC has been challenged by a sharp slowdown and weaker pricing in solar wafer markets and a modest softening of underlying semiconductor demand. The company is the only repeat from when I previously ran the screen on July 8 and on June 7.
In June, STEC (Nasdaq: STEC ) made the list with two insider buys worth an eye-popping $6,420,000 ... and became a good example of why this list is a starting point for research, but not a series of buy recommendations. The stock plunged after reporting disappointing earnings and guidance. STEC admitted that it's facing increasing competition from both lower-cost, lower-performance alternatives and products with similar performance. The company is also highly dependent on 10 customers, including EMC (NYSE: EMC ) , IBM (NYSE: IBM ) , SMART Modular (Nasdaq: SMOD ) , and Hitachi (NYSE: HIT ) , which accounted for 38%, 13%, 13%, and 11% of 2010 revenue, respectively.
Insider buying signals that someone who should be in the know is betting that the stock will rise. You can use this list of recent insider purchases as a starting point for further research -- or a good reason to make a contrarian play.
Are these insiders right? To help you find out, The Motley Fool recently introduced a free My Watchlist feature. You can get up-to-date news and analysis by adding companies to your watchlist now: