Insider buying -- one of the most reliable buy indicators you’ll ever find -- has picked up a bit in the last couple weeks.

There is a very clear relationship between insider buying and the “price” of the overall market. Namely, when stocks are cheap, the insiders load up (a la 2001 and 2002). And when the market is expensive, insiders sell more than they buy.

Today, we are in that expensive zone. More insiders are selling their stocks than buying. But there are some opportunities to be had for diligent investors.

This morning, I ran a screen looking for the most significant insider purchases in the small-cap market since the beginning of August.
I wanted to know all of the companies (with a market capitalization between $300 million-1.5 billion) that met the following criteria:

1) They had insider purchases of at least $100,000 or more
2) The purchases were made by key insiders (CEOs, CFOs, top directors, etc.)
3) All of the purchases were made on the open market at market prices (in other words, I didn’t want any worthless option-related acquisitions showing up)
4) The share price had to be greater than $1 and trade on a major exchange

All in all, 32 companies fit the bill. Equipped with this short list of stocks, I looked for some trends to see if I could narrow the list even further. So I noted every company’s industry.

Oftentimes, you’ll find that the insiders have a tendency to load up on beaten-down industries that Wall Street hates. For those of you who are aware of these situations, you can find some interesting buying opportunities long before the mainstream press figures them out. Remember, the insiders aren’t stupid people. They aren’t going to throw their money away with the thought of losing it. They will only invest when they see some upside potential -- when their stock is so undervalued it almost has to rise.

With that in mind, the three industries (in the small-cap sector) with the most insider buying this month are: regional banks, REITs and automotive. Of these three, the auto industry has been punished the most. In the last five days alone, automakers are down 1%, auto parts stores are down 4% and auto retailers are down 1.5%. Thus, it should be no surprise that insiders have spent $3.2 million buying shares of Pep Boys -- Manny, Moe & Jack (PBY:NYSE), $444,000 buying shares of Superior Industries Intl., Inc. (SUP:NYSE) and $129,590 buying shares of Lithia Motors, Inc. (LAD:NYSE).

Pep Boys is the leader in the automotive aftermarket. It has 593 stores and more than 6,000 service bays around the country. The company specializes in the do-it-yourself, do-it-for-me and replacement tire markets.

The last year has not been a good one for PBY. The company is in turnaround mode. And it is dealing with the effects of higher gas prices. Namely, the higher gas prices go, the less people drive. And the less people drive, the less demand there is for replacement auto parts.

As a result, PBY’s stock price plummeted from $16.50 in February to $9.50 this month. Of course, the million-dollar question is: How low can this stock go?

The insiders don’t think it will go much lower at all. Since last Thursday, several major directors at PBY have purchased over 291,000 shares at prices ranging from $10.89 to $11. All in all, they have spent over $3 million dollars on a stock no one else wants. What do they know that we don’t? Only time will tell…

The stock has had a great rally off the bottom but will consolidate after some more bad news but buy this on a scale down plan after Sept.