While our market beating small-cap strategy forms the basis for our investment platform, there’s one other proven, return-generating commodity that we also track, and that is insider trading activity. Not just any insider trading activity mind you, but specifically insider purchases from actual management of the companies in question (as opposed to large shareholder insiders).
Even more specifically, what we look for are multiple purchases over a short period of time, from more than one company insider, as opposed to just a massive purchase, or many purchases from only one insider. This kind of activity intimates that there is a widespread belief among management that the stock is undervalued or is about to rebound, since it’s inherently against their interests for the most part to invest their money in their own company, and not diversify their portfolios.
With that in mind, we’ve pinpointed three companies with heavy insider trading activity over the past few months and studied the case for why insiders are excited about the prospects of their companies, and whether you should be too. Let’s check them out, beginning with Verastem Inc (NASDAQ:VSTM).
Verastem is a $242 million market cap pharmaceutical company in the clinical-stage of drug development. They are primarily working towards a number of different drugs that essentially put up roadblocks along the signalling pathways of key cancer stem cells, inhibiting their proliferation. Their treatments are targetted specifically at mesothelioma and ovarian cancer stem cells at the moment, with one treatment in the registration-directed trial phase, and several undergoing phase 1 and 2 trials.
Since November 19, there have been 15 insider purchases at Verastem Inc (NASDAQ:VSTM), involving 10 different company insiders. The most significant of these was a massive 1.23 million share purchase by Executive Chairman Christoph Westphal on January 29, as Verastem closed an 8.34 million share offering the same day.
It’s not hard to see why insiders are so keen on the stock. Trading at just $7.11 at the close of trading on Friday, it is severely undervalued according to analysts. While Roth Capital lowered their price target on the stock on January 23, they did so to $23.00 from $29.00, which still places an upside of more than 200% on the stock. Likewise, Cantor Fitzgerald reiterated a ‘Buy’ rating and $22.00 price target on January 9, while Oppenheimer reiterated a ‘Market Outperform’ rating on January 12.
Kerr Neilson’s Platinum Asset Management is our most bullish hedge fund on Verastem Inc (NASDAQ:VSTM), with ownership of 1.7 million shares as of September 30.