If you are looking for fresh investing inspiration, it's worth keeping a close eye on the latest insider activity. That's particularly the case when it comes to insider buy transactions i.e. purchases by company executives or owners.
A Harvard study revealed the following: "We find that insider purchases earn abnormal returns of more than 6% per year, and insider sales do not earn significant abnormal returns." As a result the authors conclude that insider buyers 'have a good feel for near-term developments within their firm.'
Indeed, if a corporate insider- who arguably has the most in-depth knowledge about their company- decides to reach into their own pocket to buy shares, it is a strong indicator that they see the stock as undervalued at current levels.
Here we focus on informative transactions rather than uninformative transactions (ie expiring options) and transactions that occurred in the healthcare sector specifically. As you will all three stocks below also boast a Strong Buy Street consensus, based on analyst ratings published over the last three months. Let's take a closer look now:
Align Tech (ALGN)
Align Technology has made a big name for itself in the world of orthodontics. The company has revolutionized the use of metal braces with its transparent Invisalign teeth aligner system. According to Align, over 7.2 million people including over 1.7 million teens have benefited from Invisalign. That makes the company the clear market leader in its field.
The company faced a wave of insider sell transactions two and three months ago. However, the tide appears to be turning. In the last couple of days, President, CEO and director Joseph Hogan picked up $998 worth of ALGN stock. He now has a total Align holding valued at approximately $31.4 million. What’s more, this is an insider with a relatively strong track record on his Align transactions. He bought shares back in February 2018 at $252; sold at $350 in August of the same year; and is now buying again with the stock back down at $188.
Raj Pudipeddi is chief marketing officer of ALGN. He has also just made his first transaction- buying $206,000 worth of shares on August 6.
In fact Piper Jaffray analyst Matt O'Brien highlights the CEO transaction, as well as Align entering into an accelerated $200 million stock repurchase plan as evidence of management’s confidence in the business over both the intermediate and long term. This Top 100 analyst believes Align can outperform rivals, telling investors that the company "has much better products that will win in the marketplace." As a result O’Brien reiterated his buy rating and $240 price target.
Credit Suisse’s Erin Wright is even more optimistic. She has a Street high price target of $320. “While concerns over competition, DTC concepts, and ASPs will remain overhangs, we view there is room for several players in a highly underpenetrated clear aligner market. ALGN is well ahead in terms of innovation, and we await further traction in recently launched products” says the analyst.
While the analyst consensus shows Align as a cautiously optimistic Moderate Buy, if we switch to only the best-performing analysts then the consensus shifts to a more bullish Strong Buy. Indeed out of 7 top-rated analysts covering the stock, 6 rate ALGN a buy. And their $269 average price target suggests considerable upside potential of 46%.
Vertex Pharma (VRTX)
This groundbreaking biotech specializes in cystic fibrosis (CF) therapies. This is a rare, life-shortening genetic disease affecting approximately 75,000 people in North America, Europe and Australia.
Vertex is making important progress in the treatment of the disease. It just submitted a New Drug Application (NDA) to the US FDA for a Triple Combination Regimen of VX-445 (Elexacaftor), Tezacaftor and Ivacaftor.
“The submission of the NDA is a major step toward our goal of bringing this medicine to the largest remaining group of people with CF that still do not have an approved Vertex medicine, as well as toward providing significantly enhanced benefits to patients with two F508del mutations” Vertex’s chief medical officer wrote following the submission on July 22.
And now two insiders have arguably demonstrated their confidence in the application by making large stock purchases. Michael Parini, an exec VP and the company’s chief legal and admin officer, snapped up $201,592 worth of stock this week, bringing his total holding to $6.2 million. Meanwhile chief commercial officer Stuart Arbuckle upped his holding by $330,578 to over $5.7 million.
And these insiders aren’t the only financial experts demonstrating bullish sentiment right now. The stock shows a ‘Strong Buy’ Street consensus with 10 out of 12 analysts rating VRTX a buy. That’s with an average price target of $217 (25% upside potential).
“Vertex put up another very strong quarter (top- / bottom-line beats) with all three cystic fibrosis assets topping expectations” enthused JP Morgan analyst Cory Kasimov on August 1. “With strong ongoing execution on the CF front, focus continues to turn to the pipeline for the next potential leg of the story. We are finding current stock levels increasingly attractive as 2020 is setting up to be a year of major growth potential both in terms of financial (via early 2020 triple approval) and clinical performance” the analyst told investors.
Biotech Avrobio is developing lentiviral-based gene therapies that it believes can transform patients' lives in a single dose. Its most advanced pipeline drug is for Fabry disease- a rare inherited disorder that results from the buildup of a particular type of fat in the body's cells. The market opportunity is significant: worldwide sales of roughly $4 billion in 2017 for lysosomal storage diseases (LSDs), which analysts see as Avrobio’s total addressable market.
In the last two weeks, both a director and one of the company’s owners have each snapped up a further $15 million of Avrobio stock. That brings director Bruce Booth’s total holding in the company up to a whopping $100 million. Interestingly this is by far his biggest holding, but he does have million-dollar positions in three more biotech stocks: Magenta Therapeutics; Unum Therapeutics; and Miragen Therapeutics.
Luckily for Booth, Avrobio has a very bullish outlook from the Street right now. Although only three analysts have published recent AVRO ratings- all three rate the stock a buy. Plus their $34 average price target indicates upside potential of 90%.
Top Mizuho Securities analyst Difei Yang reiterated her buy rating and $28 price target on July 16. “We believe AVROBIO's robust clinical development program has potential to demonstrate significant clinical benefits in Fabry patients and ultimately position the company's gene therapy as a first-line treatment” she cheered.
Yang made the call after AVRO released positive new trial data showing sustained efficacy and a promising safety profile. Most encouragingly, 3/5 patients treated in the Phase 1 trial have discontinued standard of care enzyme replacement therapy (ERT) so far, added the analyst. Looking forward, additional Fabry updates could be available in late 2019/early 2020 although no specific timeline has yet been provided by management.