One strategy for selecting top stocks is to track insider transactions. After all, if insiders are dipping into their own pockets you can imagine it’s because they believe the stock looks compelling. A Harvard study revealed that insider purchases earn “abnormal” returns of more than 6% per year. However, insider sales do not earn such returns. The authors of the study conclude that insider buyers “have a good feel for near-term developments within their firm.”
With that in mind let’s take a closer look at five hot insider trading stocks now. And as you will see, all these stocks are currently trading at under $10 — so they are a bargain to boot. Check out the analyst price target to get an idea of the kind of upside potential coming up ahead.
Just scraping in under $10 near $9.20, we have Provention Bio (NASDAQ:PRVB). So far in 2019, insiders have generated stellar returns through their PRVB investments. Shares exploded by almost 400% in June after PRVB’s experimental immunotherapy Teplizumab appeared to delay type 1 diabetes.
Plus, insiders are continuing to snap up Provention Bio stock. In the last three months, insiders have splashed $689,000 on PRVB shares. That includes significant purchases from the company’s directors as well as CEO Palmer Ashleigh. Following a $100,000 purchase in August, Ashleigh now owns almost $25 million of PRVB stock.
And further growth still lies ahead. For instance, the Street’s average price target stands at $25. From current levels, that indicates 170% upside potential. HC Wainwright analyst Ram Selvaraju has a “buy” rating and $20 price target on PRVB.
“We remain confident that Provention Bio could receive regulatory approval and launch Teplizumab in the U.S. in 2021,” the analyst told investors Aug. 14. “The drug may indeed have fundamentally altered the disease course in treated subjects.”
He is very enthusiastic about the prospects for Teplizumab, noting that a short two-week course of once-daily intravenous infusions significantly delayed the onset of disease by roughly two years. He believes the U.S. Food and Drug Administration is likely to accept an accelerated approval timeline, especially as the drug has now received breakthrough therapy designation.
Northern Oil and Gas (NYSE:NOG) is focused on the Williston Basin, one of America’s most prolific oil-producing regions. It’s also home to the Bakken Formation and Three Forks Formation oil plays, where NOG holds approximately 165,000 mineral acres.
Insiders are clearly extremely bullish on the stock’s outlook. In fact, in the last three months, insiders have snapped up $6.6 million of NOG stock. For example, owner Robert Rowling bought $1.6 million worth of shares just 17 days ago. Meanwhile director Bahram Akradi cashed out about $2.5 million on NOG in August. As a result, he now has a total of $32 million in NOG shares.
No doubt Northland Securities analyst Jeff Grampp would approve of these transactions. He just selected NOG as one of his top energy stock picks right now.
“We continue to be bullish on NOG for its impressive [free cash flow] capabilities that we believe ultimately culminate in a return of capital program to investors,” Grampp said. “Furthermore, with [roughly] 70% of estimated 2020 production hedged at [roughly] $58.55/BBL, the company should be able to generate meaningful FCF in 2020 in most reasonable commodity price environments.”
He estimates a 2020 free cash flow yield for NOG of 23% at $55 per barrel of crude oil while leverage is expected to decline to 1.7x by year-end 2020.
Our third hot insider trading stock also comes from the energy sector. Cleveland-Cliffs (NYSE:CLF) is a leading iron ore mining company and operator. In 2018, for example, CLF’s U.S. iron ore operations in Michigan and Minnesota accounted for 55% of total U.S. pellet production capacity.
The stock has a clear positive insider trading signal. Over the last three months, insiders carried out nine consecutive informative buy transactions. They picked up a total of $654,000 in CLF shares. Multiple directors carried out transactions, with CFO Koci Keith picking up $100,000 of stock almost two weeks ago.
At the same time, the company just delivered a smooth second-quarter earnings beat. Cleveland-Cliffs reported adjusted earnings before interest, taxes, debt and amortization of $249 million –easily beating the $215 million consensus. And we can see that the primary driver was stronger-than-expected sales volumes of 6.2 billion British tons; a Q2 record for the company.
However the most significant announcement was regarding the company’s HBI facility in Toledo, Ohio. Cleveland-Cliffs now expects that the HBI Toledo Plant will reach commercial production in the first half of 2020, or roughly three months ahead of schedule. Following the announcement, B. Riley FBR analyst Lucas Pipes reiterated his bullish call on CLF. In addition, he boosted his price target from $15 to $16 (102% upside potential).
“Overall, we believe that the combination of a strong quarterly performance, increased price expectations for the full year, a quicker development schedule for HBI, and the consistent capital return profile underscores the unique investment case for Cliffs,” the analyst wrote.
Eagle Bulk Shipping (NASDAQ:EGLE) owns one of the largest fleets of Supramax and Ultramax ships in the world. It uses these ships for the global transportation of dry bulk commodities. Typical cargo includes everything from coal, grain and iron ore to fertilizer and forest products.
Over the last three months, insiders have bought a whopping $15.1 million of EGLE shares. Most of these transactions come from the company’s owners, with Oaktree Capital (NYSE:OAK) now holding a total of $137 million in EGLE stock. In addition director Paul Leand also splashed out $247,000 on EGLE stock a few days ago.
Luckily, Eagle Bulk also has the Street’s seal of approval. Noble Financial analyst Poe Fratt has a $6.40 price target on the stock — indicating 39% upside potential from its current levels. He also noted that the dry bulk market has rebounded despite the U.S.-China trade tension, making for a strong start to the second half of 2019.
Shares dropped 18% in July after the company announced a $114 million debt conversion for its fleet renewal program. EGLE plans to buy six Ultramaxes for $122 million and sell a Kestrel I for $7.3 million. Don’t be discouraged, says Fratt. He believes the negative reaction to the debt offering was too extreme and the stock should recover. Indeed, prices are already up 9.5% in the last five days.
Last but not least comes INmune Bio (NASDAQ:INMB). This California-based, clinical-stage biotech wants to redesign the immune system to stop cancer recurrence. And keep a close eye on XPro1595 for Alzheimer’s disease. The company is set to enroll the first patient in its biomarker-driven Alzheimer’s study in the third quarter. Data will come in 2020.
“Of course, we note that it’s early stage for XPro1595, but when we look at the larger picture in the [Alzheimer’s] space, targeting inflammation may be emerging as the next wave of therapeutic approaches in [Alzheimer’s],” comments Maxim Group’s Jason McCarthy.
He reiterated his “buy” rating after INmune Bio reported positive preliminary data from its ongoing Phase 1 study of INB03 in patients with advanced solid tumors. “This is the first set of clinical data to emerge for INmune, and in our view marks a milestone as management executes on driving the immunology-focused pipeline,” writes McCarthy.
He has a $13 price target on the stock (116% upside potential).
The company only started publicly trading on the Nasdaq in February 2019. On the first day of trading, the stock opened at $8.44 after pricing its IPO at $8 per share. Since then, insiders have poured money into INmune — with $300,000 worth of stock bought over the last three months alone. Most recently, director Scott Juda made a $30,000 purchase, bringing his total holding to $165,500.
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