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2 Healthcare Stocks Picked Up by Insiders
Stock Analysis & Ideas

2 Healthcare Stocks Picked Up by Insiders

This year so far has been dynamic for investors. It began with concerns about growing inflation, speculations of an interest rate hike by the Fed, and then Russia’s invasion of Ukraine. Adding to the concerns is the growing economic uncertainties stemming from the inversion of the Treasury yield curve, which can indicate an impending recession.

Moreover, the ongoing computer-chip supply shortages are expected to continue weighing on various industries. Additionally, an imminent shortage of critical metals for electric vehicle batteries is expected to disrupt the auto industry in the near future. These various worries are making investors think twice about betting their money on stocks.

Insiders Have the Edge, Should we Follow?

That being said, the saying “If there is a will, there is a way” still holds even in uncertain and volatile times like these. If insiders can ace the research game, and can catch the correct signals to follow, they are bound to find hidden gems to scoop up for good long-term results. In this regard, it is best to take a cue from the trading activities of company insiders who know exactly what trends to follow.

Top-level and c-suite executives or board members of publicly-traded companies are considered corporate insiders, and they know a great deal more about a company’s developments than what meets our eyes. Luckily, it is mandated for insiders to regularly report their trades to the Securities and Exchange Commission (SEC) to comply with transparency policies.

This gives retail investors the opportunity to track their activity from reliable sources and build investment decisions accordingly. Nonetheless, despite their trading information being available as SEC disclosures, the reports can often be convoluted and dense. Moreover, insider transactions are not always driven by sentiments, making it difficult to consider insider activity as a prime barometer to beat markets.

From this point of view, TipRanks Insiders’ Hot Stocks screener gives us a list of stocks that saw recent insider trading activity, based only on transactions indicating sentiments.

The past week has been a busy one for insider activities. However, there are two stocks that may be good bets.

Best Bets Based on Insider Transactions

Establishment Labs Holdings (NASDAQ: ESTA) designs, develops, manufactures, and markets silicone breast implants under the brand Motiva Implants. In the past year, the company has not made any profits. As with any unprofitable company, investors expect the revenue growth to be on a solid path, as consistently strong revenues often lead to profits.

Notably, Establishment Labs has managed to realize 20% growth per year for the last three years, which has kept investors’ hopes up, reflected in the 248.29% gains of ESTA shares in the past three years. The revenue-generating capability of Establishment Labs seems to be taking the company on the right track towards profitability and consistent share gains for now. In the last reported quarter, revenues surged 31% year-over-year to hit a record volume of $35.3 million.

Top investor Peter Lynch once said, “Insiders might sell their shares for any number of reasons, but they buy them for only one: they think the price will rise.” Going by this logic, we were encouraged by the recent Informative Buy transaction that JW Asset Management, one of the owners of Establishment Labs, made last week. Significantly, 35,000 shares were bought for a total value of $2.45 million. An event in which an owner hoards shares of the company can indicate that the share prices are expected to go up.

Moreover, in April, there were four buy transactions by four different insiders, suggesting that something good is about to pull the stock prices up. Based on four transactions by four unique insiders over the past three months, the TipRanks’ Insider Trading Activity monitoring tool shows that Insider Confidence Signal is Positive.

Wall Street is also fairly optimistic about the ESTA stock, with a Moderate Buy rating based on one Buy and one Hold. The average ESTA price target is $81, indicating a 0.72% upside from pre-Wednesday trading levels.

Lyra Therapeutics (NASDAQ: LYRA) is another company that has us feeling upbeat about its near-term price movements. However, before getting into the details about its insider activities, let us know a bit more about the company.

Lyra is a clinical-stage therapeutics firm that develops novel integrated drug and delivery solutions for ear, nose and throat (ENT) diseases. The company’s technology platform, XTreo, targets the affected tissue directly for precise treatment.

Last year, the company burnt $24 million of its then market capitalization of $65 million, which comes at 37% of the company’s market value, and can affect investors if the company decides to sell its shares.

Nonetheless, last week saw four informative buy transactions from four insiders, three of whom happen to be ones with ownership stakes in the company. The TipRanks’ Insider Trading Activity monitoring tool, Insider Confidence Signal, is very positive on the stock, with around $46 million worth shares bought within a week by insiders.

Wall Street is also optimistic on the stock, with a Strong Buy rating based on three unanimous Buys. Moreover, the LYRA stock price predictions indicate an average price target of $28 with an upside of a whopping 411% from pre-Wednesday trading levels.

Ending Note

Strong fundamentals and focused growth strategy are making Establishment Labs and Lyra two attractive long-term bets. As long as investors have the appetite to digest some short-term headwinds like profitability issues, significant cash burns, and slow revenue generation. Nonetheless, the stocks seem to be poised well to tide over the uncertainties that await the economy this year.

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