Famed money manager Peter Lynch told us that executives can sell their stock for any reason, but typically buy only for one: They think the price is going to go up!
Today, I've highlighted two insiders who've recently made big purchases of their own company's stock. These aren't option grants but, rather, insiders who are putting their own money on the line, buying shares at market prices, just like you and me.
I then paired that information with insights from the members of Motley Fool CAPS, to see if they think the stock has the same prospects the insiders do.
Market Value of Transactions
CAPS Rating (out of 5)
MannKind (NAS: MNKD)
Alfred Mann, Chairman/CEO
Synta Pharmaceuticals (NAS: SNTA)
Bruce Kovner, Director/10% owner
Source: Company filings
Although following the lead of insiders can be profitable, we still recommend you do further due diligence to determine whether these stocks ought to be sold from your own portfolio -- or would make a good addition! So this isn't a list of stocks to sell or buy, but just the inside track on companies you might want to check out further.
It's in the can(ister)
It takes a special kind of investor to believe in MannKind being able to bring its inhaled insulin therapy to market. On one hand, you have to overcome the FDA's earlier resistance to the biotech company's switch of its delivery device, which prompted the FDA to order more trials. Then, on the other hand, you have the massive dilution the company engaged in that many thought was a sign that the company is running out of cash. There haven't been partners lining up to help it through the crisis, and investors may doubt anyone will step forward now.
But nothing breeds success like success and, if the FDA ultimately agrees that the new inhalation canister is just as good as, if not better than, the old one -- and the insulin therapy itself gets the go-ahead -- MannKind will have suitors lining up around the block.
While questions linger over Afrezza's potential even if it makes it to market -- considering Pfizer's (NYS: PFE) Exubera was a commercial flop and the company ended development of the drug -- you have to admire Alfred Mann's willingness to put his money where his mouth is. As Fool blog writer Alexander Pavone points out, Mann has invested over $1 billion of his own cash into the company's success and, as he rightly guessed, Mann was willing to put in even more money -- another $77 million recently.
Just because larger, better-financed companies, like Eli Lilly (NYS: LLY) and Novo Nordisk, abandoned their own efforts for inhaled insulin, doesn't mean MannKind won't succeed. Obviously, all the marbles are bet on Afrezza here, and what you think the chances are is where you fall on believing it will either outperform the markets, or fall further behind. The problem, though, is these sort of binary events pose a high risk, because they rely upon outside forces -- an oftentimes fickle FDA, in this case.
More than 600 CAPS member shave weighed in on MannKind, and 83% see it going on to beat the Street. Add the biotech to your watchlist to see if it keeps its head above water long enough to make it to the end, then let us know on the MannKind CAPS page if you think Afrezza makes it through the FDA's gauntlet.
Take a deep breath
Bruce Kovner seems to be making a habit of regularly sinking $5 million into Synta Pharmaceuticals. He started off the new year with a similar-sized purchase, and now he's launched the second half of 2012 with another one.
Like MannKind, the biotech has no product on the market, and it's betting the farm on the success of its experimental lung cancer drug ganetespib. It's also had to resort to dilutive public markets financing to keep going, and deals with GlaxoSmithKline (NYS: GSK) and Roche have now been terminated.
Shares of Synta had soared in recent weeks following positive analyst comments about developments with ganetespib, but the biotech quickly took away the punch bowl by saying that, while tests were encouraging, the sample size was much too small to say the benefit was statistically significant. The stock promptly lost a quarter of its value, which likely had as much to do with Kovner buying the stock as the date of the purchase.
Three-dozen CAPS All-Stars have taken a stance on Synta, and fewer than 12% think it can't go on to beat the broad market indexes. But its low, two-star rating does suggest that they think there are better places for your money. Add Synta to the Fool's free portfolio tracker, then let us know on the Synta Pharmaceuticals CAPS page, or in the comments box below, if you think that we'll see Kovner back again buying more after the New Year.
On the inside track
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At the time thisarticle was published Fool contributor Rich Duprey owns shares of Pfizer, but he holds no other position in any company mentioned. Click here to see his holdings and a short bio. Motley Fool newsletter services have recommended buying shares of Pfizer. The Motley Fool has a disclosure policy. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. Try any of our Foolish newsletter services free for 30 days.
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