When investors want to trade on the actions of those closest to the action, the best place to look is at what the insiders of the company are doing. If there is something groundbreaking happening in the company, or if they are bullish on the company's future, then insiders will start to buy shares of their own company.
This can also happen if they think the company is undervalued, and one popular metric for valuation is the price-to-earnings ratio. This ratio is calculated by taking the share price and dividing it by the earnings per share. It indicates how much investors are willing to pay for the earnings of the company. If a stock's P/E is under 20, then it is often considered undervalued.
We made a screen using this information, starting with companies that have market caps between $300 million and $2 billion. This range is considered "small cap". If a smaller company is undervalued and insiders are buying it, then it could mean that insiders think the company will be growing.
Business section: Investing ideas
Below is a list of stocks from the screen above. We started with small-cap companies with P/E ratios under 15. We went with stocks below 15 because we wanted even further undervalued companies to get the cheapest price for earnings possible.
Then we checked those names' insider trading activity for net purchasing over the last six months.
Do you think the insiders know something that we don't?
List sorted by market cap. (Click here to access free, interactive tools to analyze these ideas.)
1. Kronos Worldwide
2. Stewart Enterprises
3. Cumulus Media
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 Danny Guttridge does not own any of the shares mentioned above.