While Wall Street analysts and market pundits often have an intimate knowledge of the companies they follow, no one has a better understanding of a company's products and markets than management itself. This is why many investors pay close attention to insider trading activity.
When corporate insiders purchase their own company shares, it can be a telling sign that the stock is undervalued. Here we focus on the U.S. mid cap space. These are three interesting insider buying patterns that suggest significant gains are ahead.
Who Bought a Big Stake in Arcus Biosciences?
There have been twice as many insider buy transactions as sells in Arcus Biosciences (NYSE:RCUS) over the last three months. By far the most powerful purchase was biopharmaceutical giant Gilead Sciences' $220.4 million statement on January 31st, 2021. It purchased 5.65 million shares of the oncology specialist at $39 per share increasing its stake to 19.5%.
The move solidified the relationship between the two California-based companies and marked a vote of confidence in Arcus Bioscience's growth prospects around its cancer therapy pipeline. The company plans to put the funding to work across its four clinical-stage programs focused on pancreatic, prostate, colorectal, non-small cell lung, and breast cancer.
The biotechnology industry is one of the most volatile groups and among the hardest to gauge which companies will find financial success. This is because product development typically involves a series of prolonged studies and clinical trials in conjunction with regulatory oversight. Knowing which trials will advance and which will take steps backwards can be a crapshoot.
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For this reason, insider buys made by biotech executives can be particularly valuable. They can signal confidence in where a company and its stock price may be headed. In the case of Arcus Biosciences, increased interest from a corporate owner, is a major vote of confidence. And with Arcus shares now trading below Gilead's purchase price, investors have an opportunity to mimic the trading action at a cheaper price.
Is GoHealth Stock Undervalued?
Staying in the health care sector, GoHealth (NASDAQ:GOCO) has had some compelling insider activity of a different sort. Rather than a big corporate buy, there has been a streak of buys made by individual corporate insiders.
Over the last two months, nine separate buys have been placed by six different members of GoHealth's board and management. This includes a pair of identical $2 million acquisitions by CEO Clinton Jones and Chief Strategy Officer Brandon Cruz who are the company's founders.
GoHealth's stock price has trended lower since it's unfortunately timed IPO of July 2020 when the COVID-19 pandemic was in full force. But with the stock now trading at half of it's initial offering price, insiders seem to agree it is well undervalued.
GoHealth is part of an increasingly crowded online health insurance space that is positioning itself to capitalize on growing consumer interest in purchasing health insurance via digital channels. The company is hoping its platform stands out and can attract more Medicare, individual, and family plan enrollments.
Adding weight to the insider activity are recent sell-side analyst opinions on GoHealth. The last three firms to offer an opinion on the stock reiterated 'buy' ratings. This includes RBC Capital which has a $20 price target on GoHealth suggesting the stock has more than 60% upside.
Are Insiders Buying Coty Stock?
Moving over to the consumer defensive sector, cosmetics company Coty (NYSE:COTY is also hoping its stock performance is in the midst of a makeover. Coty has trended lower for the better part of the last five years but has shown signs of life in recent weeks on the strength of its second-quarter earnings report.
The company handily beat consensus top and bottom-line expectations thanks to strong e-commerce growth, an improved position in China, and healthy global demand for beauty and skincare products. The recent divesture of the Wella haircare business has also helped the company focus on its core brands and deliver better financial performance.
It has also helped that company insiders have been consistently bullish on Coty shares. Over the last 10 months not a single insider sell order has been placed while more than 20 insider buys have occurred. It is uncommon to see such an unfettered stretch of insider buying but given Coty's depressed valuation the streak makes sense.
In the days immediately following the February 9th earnings release, three different board members combined to acquire nearly $1 million worth of Coty shares. Having board members that are actively involved in buying and acquiring a company's shares can be a reassuring sign to investors. Back in November 2020, director Johannes Huth acquired one million Coty shares at a price of $6.199. The stock has since climbed more than 40%.
Given the overwhelming support being showed by Coty insiders, the stock could have much further to run. As the company continues to make progress with cost savings initiatives, strengthens its balance sheet, and expands its e-commerce capabilities, investors may be in for some beautiful gains.
Companies in This Article:
| Company | Current Price | Price Change | Dividend Yield | P/E Ratio | Consensus Rating | Consensus Price Target |
|---|
| Coty (COTY) | $10.85 | +3.3% | N/A | 31.00 | Hold | $13.30 |
| GoHealth (GOCO) | $10.06 | -0.9% | N/A | -1.39 | Hold | $13.00 |
| Arcus Biosciences (RCUS) | $16.07 | -1.4% | N/A | -3.87 | Moderate Buy | $41.25 |
