Wednesday, December 15, 2004

Insider Buying: Case Study - UTSI

In my last blog, Insider Buying: Case Study - ALOY I showed how a single key insider buy triggered an immediate day-trade win of up to 4% and a multi-day short-term win of up to 10%. Now I want to describe another type of insider buy trade, one where a cluster of insider buys creates an outstanding opportunity for a 50% gain in a position trade lasting about two months.

Between September 22, 2004 and September 27, 2004, the insider service that I use published a series of insider buys for UTSTARCOM INC (UTSI). In this cluster of buys, just under 350,000 shares of UTSI were purchased by a group of insiders ranging from Directors to Senior Vice Presidents to the President and CEO of the Company. Purchase prices ranged from a high of $15.90 to a low of $14.04, for an average cost of the cluster of buys of $14.86. All of those came after the stock had dropped over 50% in the previous two months. According to CBS Marketwatch:

"Culminating what had been a year-long slide, UTStarcom endured a sharp drop last month after issuing for the second time a warning that third-quarter financial results will not match Wall Street's expectations."

But these insiders, arguably those who know more about the company and it's prospects and anyone, including analysts, financial journalists and hedge fund short sellers, reached deep into their own pockets and purchased almost $5M worth of UTSI stock on the open market. All of this insider buying was presented, day after day, in clear and unambiguous terms at the website, as well as on most if not all of the other insider transaction web sites. In other words, the information was public and as it turns out, very timely.

As of December 15, 2004, about ten weeks after these transactions were first published, UTSI closed at $22.35. This is a return of over 50% from the average price the insiders paid for their stock. While these insider buys were being reported by the various services, the stock was available to the public from a high of $16.60 to a low of $13.89. Buying it between $14-15 a share, along with these insiders, offered an excellent opportunity to profit alongside those in the know.

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