HW, SONS, WEST: Surging Stocks Boosted by Insider Transactions

Plenty of small cap stocks surging now that the broader market are also positive, but rallies backed by fundamentals are likely to outlive the superficial ones. Headwaters Incorporated (NYSE: HW), Sonus Networks Inc (NASDAQ: SONS), and Westinghouse Solar Inc (NASDAQ: WEST) have advanced substantially as insiders in these companies are buying in the growth story of individual entities. Now it can be argued that insiders buying or selling shares of their companies may be due to a number of factors and does not necessarily qualify as a fundamental metric. However, insiders usually have a better visibility of a company’s future prospects. Insiders selling may actually be a function of many other factors but when we have investors as business insiders (and they buy), it is a different ballgame altogether.

Utah based Headwaters Incorporated (NYSE: HW) sells building products including architectural stone and concrete blocks. It moved up 14 per cent so far in January in what appears to be a broad rally in home builders and construction stocks. It has an energy technology segment as well and recently acquired a majority stake in a small ethanol company, construction is HW’s mainstay business. Headwaters’ chief executive Kirk Benson constantly added to his holdings during most of the last year. While his acquisition cost is much lower, the fact that he has not started selling the shares means that he is expecting higher levels. Headwaters’ financial performance in the recent quarters also indicates that the company is on track to arrest the fall in top line and bottom-line.

Sonus Networks Inc (NASDAQ: SONS), a communications equipment product supplier to service providers and large enterprises, is also trading high on insider buying. The stock has jumped nearly 12 per cent in the previous month with a moderate increase in trading volumes. While the full year results are scheduled to be reported next month, expectations are beginning to build up after encouraging report in the September quarter. The stock trades at $2.65 in morning against its 52 week range of $1.97 - $4.16.

Shares of Westinghouse Solar Inc (NASDAQ: WEST) - a microcap solar company, are trading up 20 per cent today. Although the stock acquisitions by its directors last month were small purchases, the stock has also benefitted from a wider recovery in solar stocks. Currently available at $ 0.830, the stock has moved in the range of $ 0.25 - $2.75.