One way to pinpoint companies with bullish sentiment is by looking at company insider buying trends. After all, company insiders such as upper management and members of the company's board know more about their companies than any other investors.
It's what makes watching insider buying so interesting. Whenever shares are sold, analysts and investors question the motivation. Did the insider sell because they need more liquidity to buy a new car, pay medical bills or go on vacation? Or does the insider simply think the shares are overvalued and likely to drop in value? Do they think an industry competitor is going to give them a run for their money? There are several possibilities.
But when insiders start to buy up shares of their company, there's really only one good explanation: They think the share price is undervalued. If they're buying, then insiders are confident there is more upside potential, and might have a hunch their stock is going to rally. Of course, these predictions aren't always realized, but it's a strong indicator for outsiders to go by.
Insider activity alone isn't enough to actually shift market prices. This day and age it's the work of hedge funds that make it their daily business to buy, sell and move millions of shares every day that really get share prices moving. But hedge funds pay attention to insiders, too, so insider activity can spark institutional buying (or selling).
So we were wondering, which companies have seen the greatest level of buying activity from insiders?
To create this list, we started with a universe of about 200 companies reporting significant insider buying over the last six months.
To refine the list, we collected data on institutional transactions, and identified the names that have seen significant inflows during the current quarter.
And to further refine the list, we collected data on short-seller trends, and identified the names that have seen a significant decrease in shares shorted during the current month (i.e., short-sellers think the upside of these stocks outweighs the downside)
Sophisticated investors, like hedge fund managers and short-sellers, think these names are going higher. And insider executives seem to agree -- do you?
List sorted by relative size of insider buying. (Click here to access free, interactive tools to analyze these ideas.)
List compiled by Eben Esterhuizen, CFA:
1. Complete Genomics (Nasdaq: GNOM ) : Develops and commercializes a DNA sequencing platform for human genome sequencing and analysis. Over the last six months, insiders have been net buyers of 1,650,000 shares, which represents about 16.05% of the company's float of 10.28M shares. Net institutional purchases in the current quarter at 7.1M shares, which represents about 69.07% of the company's float of 10.28M shares. Shares shorted have decreased from 2.38M to 1.99M over the last month, a decrease which represents about 3.79% of the company's float of 10.28M shares.
2. American International Group (NYSE: AIG ) : The company operates property and casualty insurance networks worldwide and conducts activities in the U.S. life insurance and retirement services industry. Over the last six months, insiders have been net buyers of 6,982,680 shares, which represents about 2.88% of the company's float of 242.37M shares. Net institutional purchases in the current quarter at 223.3M shares, which represents about 92.13% of the company's float of 242.37M shares. Shares shorted have decreased from 20.96M to 17.44M over the last month, a decrease which represents about 1.45% of the company's float of 242.37M shares.
3. VMware (NYSE: VMW ) : Provides virtualization and virtualization-based cloud infrastructure solutions primarily in the United States. Over the last six months, insiders have been net buyers of 1,621,764 shares, which represents about 2.08% of the company's float of 77.79M shares. Net institutional purchases in the current quarter at 6.1M shares, which represents about 7.84% of the company's float of 77.79M shares. Shares shorted have decreased from 4.35M to 3.39M over the last month, a decrease which represents about 1.23% of the company's float of 77.79M shares.
4. Six Flags Entertainment (NYSE: SIX ) : Operates regional theme, water, and zoological parks in North America. Over the last six months, insiders have been net buyers of 481,660 shares, which represents about 2.02% of the company's float of 23.83M shares. Net institutional purchases in the current quarter at 4.0M shares, which represents about 16.79% of the company's float of 23.83M shares. Shares shorted have decreased from 5.35M to 5.08M over the last month, a decrease which represents about 1.13% of the company's float of 23.83M shares.
5. Equity One (NYSE: EQY ) : Engages in the ownership, management, acquisition, renovation, and development of neighborhood and community shopping centers in the United States. Over the last six months, insiders have been net buyers of 900,000 shares, which represents about 1.57% of the company's float of 57.29M shares. Net institutional purchases in the current quarter at 8.6M shares, which represents about 15.01% of the company's float of 57.29M shares. Shares shorted have decreased from 6.20M to 5.33M over the last month, a decrease which represents about 1.52% of the company's float of 57.29M shares.
6. Lincoln Educational Services (Nasdaq: LINC ) : Provides career-oriented post-secondary education services in the United States. Over the last six months, insiders have been net buyers of 291,384 shares, which represents about 1.37% of the company's float of 21.23M shares. Net institutional purchases in the current quarter at 1.2M shares, which represents about 5.65% of the company's float of 21.23M shares. Shares shorted have decreased from 1.28M to 1.04M over the last month, a decrease which represents about 1.13% of the company's float of 21.23M shares.
7. Merge Healthcare (Nasdaq: MRGE ) : Provides health information technology interoperability solutions. Over the last six months, insiders have been net buyers of 281,000 shares, which represents about 1.34% of the company's float of 21.00M shares. Net institutional purchases in the current quarter at 5.1M shares, which represents about 24.29% of the company's float of 21.00M shares. Shares shorted have decreased from 4.23M to 3.83M over the last month, a decrease which represents about 1.9% of the company's float of 21.00M shares.
8. Kratos Defense & Security Solutions (Nasdaq: KTOS ) : Provides engineering, war fighter, security, and information technology services, solutions, and products in the United States. Over the last six months, insiders have been net buyers of 175,772 shares, which represents about 0.59% of the company's float of 29.95M shares. Net institutional purchases in the current quarter at 1.4M shares, which represents about 4.67% of the company's float of 29.95M shares. Shares shorted have decreased from 3.95M to 3.46M over the last month, a decrease which represents about 1.64% of the company's float of 29.95M shares.
9. Harvard Bioscience (Nasdaq: HBIO ) : Develops, manufactures, and markets apparatus and scientific instruments used in life science research in pharmaceutical and biotechnology companies, universities, and government laboratories in the United States and internationally. Over the last six months, insiders have been net buyers of 100,000 shares, which represents about 0.49% of the company's float of 20.52M shares. Net institutional purchases in the current quarter at 1.5M shares, which represents about 7.31% of the company's float of 20.52M shares. Shares shorted have decreased from 1.15M to 943.62K over the last month, a decrease which represents about 1.01% of the company's float of 20.52M shares.
11. AOL (NYSE: AOL ) : Operates as a Web services company that offers a suite of brands and offerings for the worldwide audience. Over the last six months, insiders have been net buyers of 490,000 shares, which represents about 0.47% of the company's float of 105.22M shares. Net institutional purchases in the current quarter at 8.4M shares, which represents about 7.98% of the company's float of 105.22M shares. Shares shorted have decreased from 16.42M to 14.91M over the last month, a decrease which represents about 1.44% of the company's float of 105.22M shares.
12. Overseas Shipholding Group (NYSE: OSG ) : Engages in the ocean transportation of crude oil and petroleum products. Over the last six months, insiders have been net buyers of 73,682 shares, which represents about 0.31% of the company's float of 23.42M shares. Net institutional purchases in the current quarter at 1.7M shares, which represents about 7.26% of the company's float of 23.42M shares. Shares shorted have decreased from 8.67M to 8.12M over the last month, a decrease which represents about 2.35% of the company's float of 23.42M shares.
Interactive Chart: Press Play to compare changes in analyst ratings over the last two years for the stocks mentioned above. Analyst ratings sourced from Zacks Investment Research.
Kapitall's Eben Esterhuizen and Rebecca Lipman do not own any of the shares mentioned above. Short and insider data sourced from Yahoo! Finance. Institutional data sourced from Fidelity.
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