It was not a fun week for longs as Coronavirus is on the rise and insiders are blacked out before 2nd quarter earnings. I doubt that insiders were chomping on the bit to buy as the market rebound from the March lows has them unloading their holdings at a record pace. There were a few buys of interest and we highlight them here. Until we figure out why our embedded Google sheet is not displaying in the RSS feed in our MailChimp blast, here is the link to the trades-
Founder and former CEO Eric Lefkofsky bought $5.39 Million worth of Groupon (GRPN) with his purchase of 250,000 shares at $21.57. Groupon has been incredibly volatile of late and just did a 1-20 reverse split. Groupon had a market cap of $535 million at Friday’s closing price with a price per share $18.53. Considering this is a company with $750 million cash on hand as of May 31 with borrowings of about $368 million gives it an enterprise value less than its current market value.
GRPN has suffered enormously from the shut down of the economy as small merchants, restauranteurs, and service businesses have been forced to the brink of complete meltdown. If and when they come back, you would expect one of the best ways to do this would be to offer enormous Groupon deals. I keep looking in my own Groupon for this to happen.
It’s easy to argue that Groupon management has been inept for years, starting with the dismissal of Google’s $5.75 billion offer to buy the company in the Fall of 2010. The Company announced on March 25th a management reshuffling of the deck with the CEO and COO leaving and North American President Aaron Cooper appointed as interim CEO. The Company said it was abandoning the products business which in my mind was a smart thing to do. Going back to their core service model, with the economy opening up, any signs of turning the business around will send this stock skyrocketing. Perhaps that’s exactly what founder Lefofksy has in mind or bringing it private to get the company back on track. This makes Groupon our pick of the week. The upside is huge but unless Groupon figures out a way to stop bleeding cash, the shareholders might not last to see the recovery.
Biotech has been hot, the XBI ETF just notched an all-time high. Don’t let that performance lull you into a sense of complacency as a Democratic sweep in the fall will usher in a bear market in pharma as the fear of price controls casts a pall on the entire sector. In the meantime let the bulls run. David Mott, an esteemed biotech investor is active this past week adding about $1 million each to his positions in Ardelyx (ARDX) at $6.85 and Epizyme (EPZM) at $28. Both stocks closed lower than that on Friday. We have to pay a lot of attention to David Mott, #86 on the Forbes 500. Before investing, Mott was the president and CEO of biotech company MedImmune, where he led the company to its sale to AstraZeneca in June 2007 for $15.6 billion. Until recently he headed up the healthcare practice of New Enterprise Associates.
This is from their website, Ardelyx is focused on enhancing the way people with kidney and cardiovascular diseases are treated by developing innovative first-in-class medicines. Ardelyx’s pipeline includes tenapanor for the control of serum phosphorus in adult patients with CKD on dialysis, for which the Company is preparing for NDA submission mid-year, and RDX013, a potassium secretagogue program for the potential treatment of high potassium, or hyperkalemia, a problem among certain patients with kidney and/or heart disease. In addition, Ardelyx received FDA approval of IBSRELA® (tenapanor) on September 12, 2019. Ardelyx has established agreements with Kyowa Kirin in Japan, Fosun Pharma in China and Knight Therapeutics in Canada for the development and commercialization of tenapanor in the respective territories.
Epizyme has been on a slide since it’s drug approval of Tazverik. According to Fly on the Wall, June 19th, The FDA yesterday approved Epizyme’s Tazverik in Follicular lymphoma with a broad label, which represents a best case scenario, Citi analyst Mohit Bansal tells investors in a research note. It seems investors were confused with the language on the label but the label approved Tazverik in two populations, the analyst points out. Bansal views the approval as an important step for Epizyme, saying it opens a $600M-$700M immediate opportunity and eventually a $1.5B opportunity in second-line. The analyst recommends using any weakness to buy Epizyme and keeps a Buy rating on the shares with a $35 price target. Mott certainly agrees with that and I’d follow him on this one. Just bear in mind, there is a short timeline for biotechs based on a Democratic sweep and changing sentiment as we approach the Fall elections.
George Mickelson’s purchase of 100,000 shares at $14.77 of the Bristow Group is easy to understand. VTOL is notching lifetime lows. Bristow is the world’s leading provider of offshore oil and gas transportation, search and rescue (SAR) and aircraft support services to government and civil organizations worldwide.
Continental Resources, CLR legendary CEO Harold Hamm bought 3,436,264 shares at $16.62. Hamm pioneered the Bakken oil development in North Dakota. You have to scratch your head and wonder what he is doing buying more of this oil and gas play when his prior purchases have rarely paid off until you look at the fact that he sold $60 million worth of CLR back in December when it was trading for twice the price. I have a contrarian theory that if Democrats sweep the elections, the price of crude oil will rise sharply in the months ahead as draconian restrictions on fracking and drilling on Government lands will lead to shrinking supply and rapidly rising prices. The inevitable trend to renewables will not happen as fast as market reaction to more regulations.
Two other purchases in the oil and gas patch were notable last week. Former Occidental CEO and current Chairman of the Board, now Magnolia Oil and Gas CEO continues to accumulates shares with 50,000 at $5.92. According to Fly on the Wall, MKM Partners analyst John Gerdes initiated coverage of Magnolia Oil & Gas with a Buy rating and $7 price target. The analyst says his Q2 production expectation of 64.9 Mboepd is toward the high end of the company’s guidance, estimating that Magnolia should generate about $50M in free cash flow this year assuming NYMEX oil price around $33 and gas price around $2.10.
Vistray Energy (VST) Director Acosta bought 10,000 shares at $19.58. Start gathering your oil and gas names as they could be explosive plays if the Democrats take over in the Fall.
Opening up themes took a major setback last week as hospitality stocks sunk like a rock in still water. Two insiders at Hersha Hospitality Trust (HT)bought shares at $5.75. Normally we look at yields on all REITS but now we are just looking at survival. I’m strongly in the camp that the world will return to normal some time in the next two years and buying straw hats in the winter and selling them in the Summer is still a winning investment strategy.
Bank stocks headed back lower as the Federal Reserve announced sobering results of its latest Coronavirus stress tests and the virus took on out of control epidemic fears in many states. Wesbanco Director Gary Libs bought 25,000 shares at $20.70. WSBC has as dividend yield of 6.83% if they can sustain it. Libs is betting they can. The entire regional bank index KRE now yields 4.78%. We’ve sold puts at $30 and would love to buy KRE there, still almost 20% lower than where it closed $35.90 on Friday.
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Insiders sell stock for many reasons, but they generally buy for just one – to make money. You’ve always heard the best information is inside information. Everyone who has any experience at all in the stock market pays close attention to what insiders are doing. After all, who knows a business better than the people running it? Officers, directors, and 10% owners are required to inform the public through a Form 4 Filing any transaction, buy, sell, exercise, or any other with 48 hours of doing so. This info is available for free from the SEC’s Web site, Edgar, although we subscribe to SECForm4 as they provide a way to manage and make sense of the vast realms of data. I’ve tried a lot of vendors and SECForm4 is one of the most customer friendly and responsive I’ve used. This is as close to “insider information” that an ordinary investor is likely to see- and it’s entirely legal.
BEWARE– Following insiders can be hazardous to your financial health unless you know what you are doing. Unlike the raw, unfiltered data, The Insiders Fund blog informs you of the purchases that count, the ones that are just window dressing into deceiving the public that all is hunky dory, and those that are just flat out other people’s money and should be just discarded like bad fish. As a rule, 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 and options. 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. Unfortunately, the public information disclosure requirements about these programs referred to as Rule 10b5-1 is horrendously poor. Also planned sales that just pop up out of nowhere are basically sales and are seeking cover under the Sarbanes Oxley corporate welfare clause. I also generally ignore 10 percent shareholders as they tend to be OPM (other people’s money) and perhaps not the smart money we are trying to read the tea leaves on.
Of course insiders can also be wrong about their Company’s prospects. Don’t let anyone fool you into believe they never make mistakes. No one tracks and understands insider behavior better than us. We’ve been doing it religiously since 2001, when I quit being an insider myself and devoted myself full time to managing my personal investments. They can easily be wrong about how much others will value them, and in many cases, maybe most cases have no more idea what the future may hold than you or I. In short, you can lose money following them. We have and we curse aloud, what were they thinking! Needless to say, past good fortune is no guarantee of future success. We may own positions, long or short, in any of these names and are under no obligation to disclose that. We welcome your comments on our analysis.
This blog is solely for educational purposes and the author’s own amusement. Investing with The Insiders Fund is for qualified investors and by Prospectus only. Nothing herein should be construed otherwise. THE INSIDERS FUND invests in companies at or near prices that management has been willing to invest significant amounts of their own money in. If you would like to hear more about how you can get involved with the Insiders Fund, please schedule some time on my calendar.
Prosperous Trading,
Harvey Sax
The Insiders Fund was the 4th best long-short equity fund in the world in 2019
