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 many of them get paid largely in stock options or restricted shares. 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 thought the stock might 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 five life sciences stocks made the list:
Net No. of Buys
No. of Shares Bought
Market Cap (in millions)
Pacific Biosciences of California
Source: Capital IQ, a division of Standard & Poor's, as of Aug. 17.
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 Life Technologies, which provides systems, consumables, and services that help scientific researchers and commercial markets accelerate scientific exploration, made three open-market purchases worth a total of $857,000. In contrast, one Complete Genomics insider spent $79,000 on open-market buys. Both are bullish signs, but the Life Technologies purchases look more promising.
My Foolish colleague Seth Jason recently expressed concerns about Life Sciences' accounts receivable and days sales outstanding, while noting that neither concern was a red flag. The large insider purchases suggest that there may be good explanations.
Earlier this month, Pacific Biosciences, which ranks No. 2 on this list, plunged after JPMorgan downgraded the stock and cut its target price. The company had just reported better-than-expected earnings on much-better-than-expected revenue. It seems at least two insiders likely disagree with JPMorgan's view.
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:
Fool contributor Cindy Johnson does not currently own shares of any stock in this story. Motley Fool newsletter services have recommended buying shares of Pacific Biosciences of California. 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.
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