Insider trading has long been considered by many to be an important indicator of a company's expected performance. After all, if a company officer is willing to put his money on the line, he must be expecting to profit from the trade, the theory goes. It is also claimed that buying activity is usually more relevant than selling (there are many reasons as to why a CEO, for example, might want to sell some of his stock, but nearly the only reason for him to buy shares of the company is because he expects it to make money). There have been some instances, however, that tracking insider trades and acting on them (by buying when the officer is buying, or viceversa) has backfired, which is why it is always essential to do due diligence and not base a buy or sell decision on insider activity alone.

The following three stocks have had recent, significant insider buying: Satellite-radio provider Sirius XM Radio Inc (NASDAQ:SIRI), real estate investment and financial company Newcastle Investment Corp (NYSE:NCT), and hospital operator Health Management Associates, Inc. (NYSE:HMA).

1. Sirius XM Radio Inc (NASDAQ:SIRI): Insider buying happened on Jan 15, when both director James Mooney, and 10% owner Liberty Media Corp added shares of the company to their portfolio. Mr. Mooney merely exercised his 0.34 options, but Liberty Media Corp bought 50 million shares at $3.16 (the same price as of Friday Jan 18's closing), for a total of $157,780,000. This is a significant purchase. But how attractive is Sirius?

• With regards to valuation, it is currently trading at a P/E of 6.56x, which is attractive. However, earnings expectations are not as rosy, and Sirius trades at a forward P/E of 31.60.
• It is priced slightly below its target price of $3.27 (a 3.48% upside as of Friday's close).
• While margins are attractive (they reported a latest profit margin of 102.87%), their future performance is less clear.

My take: The recent insider buying might signal a positive earnings surprise come Feb. 2, but the relatively low potential upside, coupled with the lack of dividend and uncertain future, make me think twice before following the insiders and pulling the trigger on this one.

2. Newcastle Investment Corp (NYSE:NCT): On Jan 11, both Director Wesley Edens and Secretary Randal Nardone bought 106,950 shares. Each. That's a purchase of almost $1 million worth of shares, or a total of almost $2 million combined. Would it be wise to follow these gentlmen's footsteps?