Smart Money: Cash-Rich Companies Boosted by Institutional and Insider Buying

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(Written by Rebecca Lipman. List compiled by Eben Esterhuizen, CFA)

In life, and in finance, something becomes more attractive when it a) has a lot of money, and b) receives favorable attention from those in a position of power. Let’s apply that idea to the market.

To create our list we first searched for companies that have large cash cushions. So large, in fact, that the companies in question could run operations (on average) for more than four quarters without earning a single penny in profit.

While nobody would want such shares of such a reckless company, a company’s cash cushion speaks volumes about its ability to weather tougher economic times, at least in the near term. Large cash holdings also suggest a company has the ability to buy up new companies and expand operations.

To refine the quality of our list we searched through our universe of cash-rich companies for those with significant buying from the “smart money” investors: insider executives and institutional investors.

Institutional investors have access to sophisticated research, while company insiders know more about their companies than any other investors. When these groups of investors buy a stock, it’s a signal to take a second look.

 

The List

Interested? The following is a list of cash-rich companies (these companies could function for more than four quarters without generating any revenue) that have seen a significant increase in buying from insider and institutional investors.

The “Smart Money” seems to think these cash-rich companies have more upside than downside–do you agree?

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1. Theravance Inc. (THRX): Engages in the discovery, development, and commercialization of small molecule medicines for various therapeutic areas, including respiratory disease, bacterial infections, and central nervous system (CNS)/pain. Average quarterly operating expense over the last five quarters at $28.67M, vs. most recent cash and short term investments at $265.17M, implies a Cash / Avg. Operating Expense ratio at 9.25. Net institutional purchases in the current quarter at 1.4M shares, which represents about 3.86% of the company's float of 36.24M shares. Over the last six months, insiders were net buyers of 5,189,200 shares, which represents about 14.32% of the company's 36.24M share float.

2. Questcor Pharmaceuticals, Inc. (QCOR): Provides prescription drugs for central nervous system and inflammatory disorders. Average quarterly operating expense over the last five quarters at $21.05M, vs. most recent cash and short term investments at $165.71M, implies a Cash / Avg. Operating Expense ratio at 7.87. Net institutional purchases in the current quarter at 3.0M shares, which represents about 5.39% of the company's float of 55.65M shares. Over the last six months, insiders were net buyers of 181,875 shares, which represents about 0.33% of the company's 55.65M share float.

3. Heelys, Inc. (HLYS): Designs, markets, and distributes action-sports-inspired products for 14-year-old boys and girls under the Heelys brand name. Average quarterly operating expense over the last five quarters at $8.76M, vs. most recent cash and short term investments at $62.61M, implies a Cash / Avg. Operating Expense ratio at 7.15. Net institutional purchases in the current quarter at 704.2K shares, which represents about 4.29% of the company's float of 16.41M shares. Over the last six months, insiders were net buyers of 11,000 shares, which represents about 0.07% of the company's 16.41M share float.

4. Alimera Sciences, Inc. (ALIM): Engages in the research, development, and commercialization of prescription ophthalmic pharmaceuticals. Average quarterly operating expense over the last five quarters at $5.55M, vs. most recent cash and short term investments at $38.61M, implies a Cash / Avg. Operating Expense ratio at 6.95. Net institutional purchases in the current quarter at 738.7K shares, which represents about 9.92% of the company's float of 7.45M shares. Over the last six months, insiders were net buyers of 7,553 shares, which represents about 0.1% of the company's 7.45M share float.

5. Seattle Genetics Inc. (QCOR): Focuses on the development and commercialization of monoclonal antibody-based therapies for the treatment of cancer and autoimmune diseases in the United States. Average quarterly operating expense over the last five quarters at $53.19M, vs. most recent cash and short term investments at $361.7M, implies a Cash / Avg. Operating Expense ratio at 6.8. Net institutional purchases in the current quarter at 5.2M shares, which represents about 4.59% of the company's float of 113.41M shares. Over the last six months, insiders were net buyers of 1,475,000 shares, which represents about 1.3% of the company's 113.41M share float.

6. Midway Gold Corp. (MDW): Engages in the acquisition, exploration, and development of mineral properties in North America. Average quarterly operating expense over the last five quarters at $2.47M, vs. most recent cash and short term investments at $15.26M, implies a Cash / Avg. Operating Expense ratio at 6.17. Net institutional purchases in the current quarter at 3.0M shares, which represents about 3.85% of the company's float of 78.01M shares. Over the last six months, insiders were net buyers of 100,000 shares, which represents about 0.13% of the company's 78.01M share float.

7. BioSante Pharmaceuticals, Inc. (BPAX): Develops products for female sexual health and oncology. Average quarterly operating expense over the last five quarters at $14.07M, vs. most recent cash and short term investments at $69.6M, implies a Cash / Avg. Operating Expense ratio at 4.95. Net institutional purchases in the current quarter at 6.9M shares, which represents about 6.51% of the company's float of 106.06M shares. Over the last six months, insiders were net buyers of 37,000 shares, which represents about 0.03% of the company's 106.06M share float.

8. Excel Trust, Inc. (EXL): Engages in financing, developing, leasing, owning and managing community and power centers, grocery anchored neighborhood centers and freestanding retail properties. Average quarterly operating expense over the last five quarters at $9.46M, vs. most recent cash and short term investments at $45.88M, implies a Cash / Avg. Operating Expense ratio at 4.85. Net institutional purchases in the current quarter at 3.2M shares, which represents about 11.13% of the company's float of 28.75M shares. Over the last six months, insiders were net buyers of 23,000 shares, which represents about 0.08% of the company's 28.75M share float.

9. Procera Networks, Inc. (PKT): Provides network traffic awareness, analysis, and control solutions for broadband service providers. Average quarterly operating expense over the last five quarters at $7.87M, vs. most recent cash and short term investments at $34.34M, implies a Cash / Avg. Operating Expense ratio at 4.36. Net institutional purchases in the current quarter at 299.3K shares, which represents about 4.77% of the company's float of 6.28M shares. Over the last six months, insiders were net buyers of 3,000 shares, which represents about 0.05% of the company's 6.28M share float. 



The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of The NASDAQ OMX Group, Inc.



This article appears in: Investing , Investing Ideas , Business , Stocks


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