On the whole, investors tend to let emotion, rather than logic, govern their trading decisions. As a result, Wall Street sees a lot of overreaction to events that only carry a short-term impact -- investors are often blind to opportunities outside their immediate field of vision. But for those who can see over the horizon, there's potential to profit off the short-sightedness of others.  

So how do you find companies with excellent long-term prospects? It's no easy feat, but paying attention to the trades of company insiders may help point you in the right direction.

Because regulations prohibit company management from buying and selling stocks over short time intervals, their buys are by nature long-term investments -- insiders are essentially forced to hold their positions for extended periods of time. Management knows more about their business than anyone else -- so if they're willing to hang onto its stock, the company's prospects might be looking pretty strong.

All of the stocks mentioned below have seen sharp losses during recent sessions, but insiders remain optimistic on their long-term outlook. But remember, there may be a good reason why these stocks are being dumped -- and insiders don't always get it right. So 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 month.

Company

Industry

Performance Over Last Month

Insider Activity

MannKind (Nasdaq: MNKD)

Biotechnology

-27.10%

Insiders purchased an average of 1,746,833 shares per year over the last two years

Power-One (Nasdaq: PWER)

Diversified Electronics

-22.58%

Insiders purchased an average of 15,000 shares per year over the last two years

Akamai Technologies (Nasdaq: AKAM)

Internet Information Providers

-21.80%

Insiders purchased an average of 147,458 shares per year over the last two years

Quantum (NYSE: QTM)

Data Storage Devices

-13.95%

Insiders purchased an average of 13,234 shares per year over the last two years

AOL (NYSE: AOL)

Internet Information Providers

-13.65%

Insiders purchased an average of 526,678 shares per year over the last two years

Pep Boys (NYSE: PBY)

Auto Parts Stores

-13.47%

Insiders purchased an average of 31,392 shares per year over the last two years

KB Home (NYSE: KBH)

Residential Construction

-13.23%

Insiders purchased an average of 15,000 shares per year over the last two years

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. Note: The numbers on top of items represent the forward P/E ratio, if available.


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

KB Home is a Motley Fool Big Short short-sale pick. Akamai Technologies is a Motley Fool Rule Breakers selection. The Fool owns shares of Power-One. Motley Fool Alpha owns shares of KB Home. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.