Several new buys this week signaled a return to animal spirits for a small group. The majority of corporate America beat the drum beat, sell in May, Go Away. The market marched to a new high but not every stock participated. These buys represent value in an overvalued market, perhaps one long in the tooth. We don’t aim to predict tops or bottoms but when insiders buy large amounts of their own company’s stock, they do it for one reason; to make money. We are highlighting notable buys over $200,000 as this represents something more than window dressing.
Buys
ADM Archer Daniels Midland Chairman Luciano took advantage of depressed prices to buy $1,000,691 worth of ADM stock at an average price of $42.30. ADM reported sinking earnings on April 26th. As is often the case, the news was already in the stock as ADM rallied buoyed by two insider buys. The CFO also purchased $256,542 at $42.76. One consequence of Trump’s trade war is that China has levied reciprocal tariffs on U.S. agricultural products like Soybeans. Farmers are hurting and their mega-suppliers like ADM and Bunge are feeling the pain. With a trade deal imminent, the smart money may be working its way into the depressed AG sector.
AMRS Amyris Inc Dir Kung plunked down $4.3 million to buy 913,529 at an average price of $4.76. Legendary founder of Kleiner Perkins (the granddaddy of Menlo Park VC firms), John Doerr laid out $33.8 million at an average price of $33.8 million. Amyris, Inc., an integrated renewable products company, delivers alternatives to petroleum, plant, and animal-based products across a range of consumer and industry segments worldwide. It applies its bioscience solutions to convert plant sugars into hydrocarbon molecules, specialty ingredients, and consumer products. The company delivers its No Compromise products and services in markets, such as specialty and performance chemicals, flavors and fragrances, cosmetics ingredients, pharmaceuticals, and nutraceuticals.
Amyris has never made money and has a history of up and down revenues. We have no idea of what’s going on here that motivates these insiders. But that’s often the essence of following insider trading. It’s as close as to nonpublic information as you can get. Remember, insider information is the best information.
BIIB Biogen This is our pick of the week. Please refer to our blog post on it here.
CERN Cerner Corp Director Wise bought $499,776 at an average price of $65.76. Cerner is a medical records software giant and has been a wonderful stock for investors for many years. Director Greisch bought 9000 shares at $67.57. Perhaps these Directors are just recognizing the obvious. Cerner is approaching all-time highs last reached in 2015. The money has it that Cerner will soon make a lifetime high. Business must be good and getting better.
FIX Comfort Systems Chairman Meyers purchased 4500 shares at $53.61. Fix has been a steady winner. Comfort Systems USA, Inc. provides mechanical installation, renovation, maintenance, repair, and replacement services for the mechanical services industry in the United States. It is involved in the design, engineering, integration, installation, and start-up of mechanical and related systems; and maintenance, repair, replacement, renovation, expansion, reconfiguration, and monitoring of mechanical systems, including heating, ventilation, and air conditioning (HVAC) systems, as well as plumbing, piping and controls, off-site construction, electrical, monitoring, and fire protection.
DBD Diebold Nixdorf Inc The pain trade continues. Four insiders bought $526.6k worth of this ATM and safety box giant. DBD has been on a roller coaster plummeting 80% in price during 2018 but rebounding sharply in 2019 only to get slaughtered down 22.5% again on 1st quarter earnings and rebounding 14.8% after the insiders bought more stock. This is a name we are staying away from now until the turnaround gets better traction.
GRUB GrubHub Inc CEO Maloney bought $999,982 worth of stock at $64.87 putting a temporary halt to the slide in this food delivery online software company. But a $million dollars is a lot of money and Maloney must see something that the rest of us don’t. Grub has made money since it went public but 121 x earnings is a very steep price to pay for anything, even the rosiest of growth stocks. With Uber staking out food delivery as one of their key verticals, the future doesn’t look so rosy to me.
SEE Sealed Air Corp CEO Doheny has been a steady buyer of his company’s stock. He has been rewarded to date. His latest purchase was 5000 shares at $45.00. Sealed Air Corporation provides food safety and security, and product protection solutions worldwide. It operates in two segments, Food Care and Product Care.
TXRH Texas Roadhouse Inc Director Zarley bought $992,439 at $52.51. Last week TXRH took a plunge after reporting 1st quarter earning and FY19 outlook. Immediately upon the release of this buy, the stock bumped up in price.
UNH United Health Group Inc Director McNabb upped his holdings by 443.8% purchasing 6,430 shares at an average price of $233.21. This was the first insider buy we have seen in UNH and it was a large one, $1,499,534. All healthcare and health insurance stocks have been under pressure due to the rallying cry “medicare for all” by a number of the Democratic 2020 Presidential candidates. It’s way too early to game how all of this will play it but this director is betting now that it won’t happen. Medicare for All would be an existential threat to United, as the largest health insurer in the United States.
Sells
PG Proctor & Gamble Co Eleven insiders sold $20.3 million worth of stock in a variety of sells and stock option exercises. This is not too surprising as this classic blue chip stock is trading at all-time highs.
HAS Hasbro Six insiders sold $37.1 million worth of stock. Hasbro stock rallied about 20% on 1st quarter earnings that were slightly better than expectations and an upbeat earnings call. This was an overreaction in our opinion and insiders seemed to be quick to take advantage of the frothy move.
TXN Texas Instruments Texas Instruments beat 1st quarter earnings expectations and initially rose on this only to sell off when Texas Instruments CEO said ‘demand continued to slow across most markets’ warned about its outlook. After a few days, the stock basically did nothing but insiders took this warning more seriously, five insiders sold $78.6m worth of stock and options.
DFS Discover Financial Services Five insiders sold $4.4 million worth of stock. These were all sells and represented significant portions of their holdings. We have to pay attention to this divestiture.
TER Teradyne Inc Four insiders sold $4.5 million worth of stock. The pace of selling has picked up as Teradyne stock price reaches multi-year highs. These insiders sold over 20% of their holdings. Maybe you should lighten up too.
EBAY eBay Inc. Four insiders sold $4 million worth of stock and options. Two directors outright sold substantial percentages of their holdings at prices from $38.09 to $38.34. Director Jones reduced here holdings by $1 million and 40.8%.
JNPR Juniper Networks Inc. Director Denuccio sold 70.8% of his holdings at $27.80. VP Leelanivas sold 9,641 shares at $27.76. Juniper confirmed guidance for the year of $1.75 +=/$0.05.
In this report, we examined open market purchases from employees and directors. Insiders sell stock for many reasons, but they generally buy for just one – to make money. As a standard, we only look at material amounts of money, $200 thousand or more, as anything less could just be window dressing. The bar is different from selling because the natural state of management is to be sellers. This is because most companies provide significant amounts of management compensation packages as stock. Therefore, with selling, we analyze for unusual patterns, such as insiders selling 25 percent or more of their holdings or multiple insiders selling near 52-week lows. Another red flag is large planned sale programs that start without warning. We generally ignore 10 percent shareholders as they tend to be OPM (other people’s money) and not the SMART money we are trying to go to school on. Although this info is available for free from the SEC’s Web site, Edgar, we subscribe to the Washington Service as they provide a way to manage and make sense of the vast realms of data.
To learn more about our strategy, visit our website here. We welcome your comments on our analysis.
THE INSIDERS FUND is a long-short equity fund. We invest in companies at or near prices that management has been willing to invest significant amounts of their own money in. After all, who knows a business better than the people running it? You’ve always heard the best information is “inside information”. The SEC mandates that officers, directors and 10% shareholders file a Form 4 detailing buying and selling in their company’s stock within 48 hours. The SEC makes this info public immediately upon receiving it. This is as close to “insider information” that an ordinary investor is likely to see. Our Fund provides complete liquidity with no lock-ups. We only invest in transparent and liquid Level 1 securities. This strategy involves taking long positions in stocks that are expected to increase in value and short positions in stocks that are expected to decrease in value We may own positions, long or short, in any of these names and are under no obligation to disclose that.
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