2 Stocks to Buy, 1 to Hold
Mohsin is a member of The Motley Fool Blog Network -- entries represent the personal opinion of the blogger and are not formally edited.
Insider buying is widely considered a positive indicator for any company. This holds truer for biotechnology companies because valuations are linked to pipeline candidates. The insiders have the most information about the progress of these candidates along with other vital information about the company.
However, insider buying can also mislead investors into making investments at inopportune moments. Therefore, it is important to view insiders buys in combination with other fundamental information about the company and industry.
The following three companies have seen some heavy insider buying during the last few months. Although this is a bullish signal for these investments, other aspects should be taken into account to assess if it’s the right time to invest.
Opko Health (NYSE: OPK) is a healthcare company involved in the development, discovery and commercialization of diagnostics and pharmaceuticals. The company is working on a number of different diagnostics for various life threatening ailments. It is currently working on molecular diagnostics tests, for the identification of non-small lung cancer, pancreatic cancer, Alzheimers etc. It is also developing CTAP101 capsules for the treatment of stage ¾ chronic kidney diseases.
The company has one of the highest insider ownerships in the healthcare sector. Insiders own approximately 186 million shares of the company which amounts to percentage ownership of 55%. The company CEO Dr. Frost owns a large portion of this 55% and has a $940 million stake in the company. Dr. Frost has been continually increasing his share in Opko since he became the CEO in 2007.
In the last six months insiders have further added 6.3 million shares, increasing insider ownership by 3.5%. This confidence of the company CEO and insiders is a very positive indicator for the company. The stock has appreciated 55% in the last 6 months but is still trading below mean sell side target price of $8.2.
Any analysis of Opko will be incomplete without the discussing Dr. Frost, the CEO. Dr. Frost has a history of buying troubled pharmaceutical companies and selling them for a premium. His past conquests include sale of Key Pharmaceuticals, Ivax Corporation and becoming the Chairman at Teva. He currently holds a 40% stake in Opko and has been continuously adding more to this portfolio. This heavy buying by Dr. Frost and reasonable valuations makes Opko Health a strong buy.
Hansen Medical (NASDAQ: HNSN) is involved in the development and commercialization of medical robots. The company offers the Sensei Robotic Catheter system and Artisan catheters for the control, manipulation and control of mapping catheters during various electrophysiology procedures. The company will launch approximately 15 robotic catheter systems during 2013 and also commercialize more than 3000 procedures.
Hansen has seen consistent insider buying during the last few months. In the last 5 months, insiders have bought over 380,000 shares of the company and sold only 50,000 shares. Even this month Insiders have bought approximately 83,000 shares.
The stock has depreciated approximately 30% in the last 6 months. The heavy buying by insiders reflects their belief that the stock has slumped below its potential valuations. The commercialization of approximately 3000 more procedures will considerably improve gross margins and launch of Magellan System can also be a positive catalyst for valuations. Based on these factors, the market should expect that the stock price to rally in the coming months.
Pacific Biosciences of California (NASDAQ: PACB) is involved in the development and manufacture of an integrated genetic analysis platform. The company’s SMRT technology enables the study of the structure, regulation, composition and synthesis of DNA.
The company value has increased by almost 80% in the last six months. It is still trading below its mean sell side target price of $2.63 and has a predominantly ‘buy’ rating from the sell side. Insiders have purchased almost $1.4 million shares of the company, increasing total insider holding by almost 8%. During the same period institutional investors have sold approximately $5.8 million shares of the company, reducing holdings by 28%.
There are mixed signals about Pacific Bioscience and heavy selling by the institutions indicates that the stock can plummet due to profit taking. Investors should ‘hold’ and wait for a price decline before investing.
Investors can go for Hansen and Opko Health but are better off holding Pacific Biosciences. The confidence of the CEO in Opko health is a highly bullish signal for the investment and makes it a long term buy. The 30% price decline in Hansen along with heavy insider buying is an indicator that investors should go for this undervalued company.
The 80% rally in Pacific Bioscience has overvalued the security and heavy institutional selling will likely result in depreciation of value. The company is still a long term buy but waiting for a price decline will substantially increase margins for long term investors.
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Mohsin Saeed has no position in any stocks mentioned. The Motley Fool recommends 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. Is this post wrong? Click here. Think you can do better? Join us and write your own!