Can Following The Insiders Into VMware, Inc. (VMW) and NewLink Genetics Corp (NLNK) Lead To Big Rewards?

Page 1 of 2

One strategy that has proven to be effective over time in determining whether a stock is moving higher is insider accumulation, due to one simple reason. Insiders sell shares for a variety of reason, but they buy them, just like us, because they believe the stock will move higher. Furthermore, they have an enviable vantage point of their company’s day-to-day operations, and they may also have a large investment of their own, which they would like to see increase in value. The following stocks have notable insider purchases, which may provide you with a nice stating point for your own investment research.

VMware-Nicira ImpactA cloudy contender

Virtualization and infrastructure solutions giant VMware, Inc. (NYSE:VMW) has seen better days; it recently got slammed on a disappointing earnings report. The outlook was not pretty, and the stock now sits virtually at its $76.25 52-week low.

Nonetheless, major shareholder and storage giant EMC Corporation (NYSE:EMC) seems to think the stock will move higher in the foreseeable future. From Jan. 31 to Feb. 2, EMC collectively gobbled up 289,500 shares at an average price of $77.70. That equates to an impressive $22.5 million worth of stock, and brings its total ownership to over 41.5 million shares now, or approximately 10% of the total VMware shares outstanding.

This is obviously a strong vote of confidence. EMC apparently thinks that VMware’s stock will move higher, and that the big hit in the share price does make the company more attractive. However, VMware is still trading at some lofty valuations for this Fool, with a trailing price-to-earnings ratio of 45, a price-to-sales of more than 7, and an enterprise value-to-EBITDA ratio of 24.

So while I still believe the cloud computing space has much more growth ahead of it as more of the public realizes its potential, I just cannot get behind a company that is still a little too expensive for my taste at this time.

If I were looking to place a bet on VMW, I think going indirectly through its major shareholder, EMC, makes more sense to me. EMC’s stock there trades at a much more reasonable (albeit not growing as fast as VMW) trailing P/E of 20, just over 2.5 times its price to sales, and 8.5 times its enterprise value to EBITDA.

Moreover, they both have basically the same returns on assets and equity of 6% and 14% respectively, so I think buying EMC is in some ways buying VMW on sale. Moreover, you get EMC’s highly profitable and consistently growing data storage business. With the continued growth of internet and other data uses, investors can reasonably expect that growth will continue and the stock will move higher over time.

A biotech bonanza?

NewLink Genetics Corp (NYSE:NLNK) is a biopharmaceutical company focused mainly on cancer treatment options and solutions. The company has been range-bound the last year, and it’s currently stuck in the middle of its 52-week range.

Nonetheless, major shareholder Stine Seed Farm sees rosier days ahead, buying a massive 880,000 shares on Feb. 4 at $11.40 apiece, equating to just over $10 million worth of stock. That brings Stine Seed’s total ownership to more than 7 million shares, or approximately 35% of the total shares outstanding. This is a very strong vote of confidence, because Stine Seed’s latest purchase equates to approximately 4% of the total value of the company.

Looking more closely at NewLink, we can see some positive developments. The company has either met or exceeded consensus analyst estimates in each of the last three quarters. It’s also cleaned up its balance sheet, now holding virtually no debt and approximately $27 million in net cash.

Page 1 of 2

Dividend Stock Alert - Billionaire Robbins' Top Dividend Idea With 70% Upside Potential

Get Paid 3.5% Per Year While Waiting For The Stock Appreciate 70%

Larry Robbins' Glenview Capital Opportunity Fund returned 101.7% in 2013 and Robbins personally made $750 million. The same fund returned 25.3% in 2014. In this FREE REPORT we will share Robbins' top dividend idea that yields 3.5% and has been increasing its dividends for 39 consecutive years. Robbins thinks the stock has the potential to appreciate 70%.

This is a FREE report from Insider Monkey. Credit Card is NOT required.
Click here to Read Comments
Insider Monkey Small Cap Strategy
Insider Monkey Small Cap Strategy

Insider Monkey beat the market by 74 percentage points in 2.5 years. Our beta is only 1.2 (download a FREE newsletter and see the details inside)

Lists

Best Selling Magazines in the World

Shortest People in History

The Most Celebrated Holidays in the World

Most Expensive Handbag Brands in the World

Top Selling Comic Book Issues of this Century

The Most Powerful Women in Politics

Best Paid DJs

Most Rebellious Female Artists

Best Paid TV Actresses of 2014

Best Paid Actors of 2014

Most Expensive Horses in the World

Tallest People Ever

Most Encouraging Feminist Celebrities

Best Paid Supermodels of 2014

Top 10 Suburbs for Retirement in 2015

10 Wealthiest Cities in America

Top 10 TED Talks for Entrepreneurs

Best TED Talks on Education

25 Most Dangerous Places to Live in America

Top 10 Ski Resorts in the United States – 2014 List

Top 10 Most Remote Places in the World

Most Visited Museums in the United States

Wealthiest Photographers in the World

Most Famous Gay Athletes

The World’s Most Famous Circuses

Best Hair Stylists

Most Popular NASCAR Drivers

The Best Romance Movies of all Time

The Most Wanted Drug Lords

The Oldest Money Managers

The Greatest Directors in the World

Largest Animals in the World

World’s Most Expensive Desserts

Best Selling Comic Books of All Time

A-list Actors who Sabotaged Their Career

Rappers With a College Degree

The Best Jazz Albums of all Time

The Most Influential Jazz Musicians

The World’s Most Famous Photographers

The Best Oscar-Winning Songs

Most Influential Choreographers Ever

Most Expensive Department Stores in the World

The Most Expensive Stolen Paintings in the World

The World’s Most Expensive Teas

Top Oscar Record Holders

The Most Expensive Flowers in the World

Countries With a Booming Film Industry

Most Expensive Cupcakes in the World

Uncommon European Escapes

The Most Stolen Artists in History

Subscribe

Enter your email:

Delivered by FeedBurner

X

Thanks! An email with instructions is sent to !

Your email already exists in our database. Click here to go to your subscriptions

Insider Monkey returned 129% in 2.5 years!! Wondering How?

Download a complete edition of our newsletter for free!