Investing 101: Stocks Under $5 Seeing Institutional and Insider Buying

Low-priced stocks often tend to be more volatile in their price movements than higher priced stocks, but does that mean they should be avoided? What if both insiders in the company and institutions are buying them?

Insider Activity

Many analysts follow insider buying trends because, after all, insiders know more about their companies than anyone else. Their investment activity is closely monitored and can tell us a lot about where they feel the business is heading.

Here we look at insider buying as a percentage of the share float. Companies experiencing insider buying over the past six months provide an indicator that insiders think the stock is undervalued at current levels. Inversely, insider selling serves as a negative indicator.

Institutional Activity

Institutional investors are also known as “big money” investors. They manage large pools of money such as mutual funds and hedge funds. When they invest in stocks, they can invest hundreds of thousands of dollars or more at one time. These transactions, called “block trades,” can have a significant effect on share prices.

Because institutional investors handle such large amounts of money, it is easy enough to assume that the big money managers know more than the average investor. This is why these investors are also sometimes referred to as “smart money,” and why their trades are so closely followed.

Business Section: Investing Ideas

We started this screen with stocks that were priced from $1-$5, and then screened for those with significant net institutional and insider purchases over the last quarter and last six months, respectively. Do you think the smart money has it right?

Interactive Chart: Use the Compar-O-Matic to compare analyst ratings for the stocks mentioned below:

List sorted by market cap.

1. Clearwire Corporation (CLWR, Earnings, Analysts, Financials): Provides wireless broadband services. Market cap at $2.14B. Price (as of market close on 02/21) at $2.16. Net institutional purchases in the current quarter at 114.7M shares, which represents about 34.43% of the company’s float of 333.14M shares. Over the last six months, insiders were net buyers of 2,798,989 shares, which represents about 0.84% of the company’s 333.14M share float.

2. Synovus Financial Corp. (SNV, Earnings, Analysts, Financials): A diversified financial services and bank holding company, provides commercial and retail banking, financial management, insurance, and mortgage services in Georgia, Alabama, South Carolina, Florida, and Tennessee. Market cap at $1.56B. Price (as of market close on 02/21) at $1.99. Net institutional purchases in the current quarter at 25.0M shares, which represents about 3.23% of the company’s float of 774.15M shares. Over the last six months, insiders were net buyers of 375,800 shares, which represents about 0.05% of the company’s 774.15M share float.

3. Cumulus Media Inc. (CMLS, Earnings, Analysts, Financials): Engages in the acquisition, operation, and development of commercial radio stations in the United States. Market cap at $510.20M. Price (as of market close on 02/21) at $3.61. Net institutional purchases in the current quarter at 20.7M shares, which represents about 42.65% of the company’s float of 48.54M shares. Over the last six months, insiders were net buyers of 8,549,020 shares, which represents about 17.61% of the company’s 48.54M share float.

4. Dynavax Technologies Corporation (DVAX, Earnings, Analysts, Financials): A clinical-stage biopharmaceutical company, discovers and develops novel products to prevent and treat infectious diseases. Market cap at $477.35M. Price (as of market close on 02/21) at $4.13. Net institutional purchases in the current quarter at 30.8M shares, which represents about 26.1% of the company’s float of 117.99M shares. Over the last six months, insiders were net buyers of 180,000 shares, which represents about 0.15% of the company’s 117.99M share float.

5. Corinthian Colleges Inc. (COCO, Earnings, Analysts, Financials): Operates as a post-secondary career education company in the United States and Canada. Market cap at $412.57M. Price (as of market close on 02/21) at $4.86. Net institutional purchases in the current quarter at 2.5M shares, which represents about 3.25% of the company’s float of 76.98M shares. Over the last six months, insiders were net buyers of 110,000 shares, which represents about 0.14% of the company’s 76.98M share float.

6. Sequenom Inc. (SQNM, Earnings, Analysts, Financials): Provides products, services, diagnostic testing, applications, and genetic analysis products that translate the results of genomic science into solutions for biomedical research, translational research, molecular medicine applications, and agricultural and livestock research. Market cap at $336.62M. Price (as of market close on 02/21) at $4.41. Net institutional purchases in the current quarter at 8.8M shares, which represents about 9.43% of the company’s float of 93.30M shares. Over the last six months, insiders were net buyers of 96,150 shares, which represents about 0.1% of the company’s 93.30M share float.

(Written by Danny Guttridge)

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