Last week we sounded the bell on Rocket Mortgage. We said to own the 600 LB mortgage gorilla when it rolled over on the dud of an IPO. RKT made our week, popping 30%.
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The pick of the week goes to an obscure biotech company you’ve never never heard of, Verrica Pharmaceuticals VRCA. It went ballistic after two insiders bought stock, closing the week up 50% -not bad for a couple of days trading action. The pin action makes little sense to me as they had two significant pipeline deals and the stock did nothing; then a little insider buying and it skyrockets. But that’s the way it happens in the last legs of a frenzied bull market.
The dog of the week goes to Seacorp, SMHI. Director Abendschein bought 75,003 shares at $3.28 and the by end of the week he was down 15%. Ironically, that’s one we like. SMHI has the largest and most diverse fleet of offshore marine support and specialty vessels to meet the full lifecycle needs of offshore wells and windfarms.
The entire oil and gas sector has been a significant underperformer due to well known reasons. A Democratic administration and the green deal is certain to sour sentiment further. I have a theory that fracking will get more expensive with increased regulation if not outright de facto banning in some areas. The consequences in my opinion are that the “green aspirations” will outpace the electrification and substitution of combustion engine vehicles. In short demand will exceed supply and contrary to consensus opinion, the price of crude will rise. Specifically, long lived assets that can be accessed without new fracking would be an interesting way to play this, hence offshore oil and gas.
Right on cue, keeping with the “green” theme, Jeff Immelt bought 70,000 shares of alternative energy play, Bloom Energy, BE at $14.86. We were lucky enough to take the bait on this juicy one and escaped with a nice 20% pop. Following Immelt is almost a sure fire way to lose money as he bought $ Millions of dollars at GE while he ran it into the ground, but with green deal dreams and California burning, this was as close to a sure thing as you’re likely to see in the short term. We bought Bloom this time last year when California was burning up with forest fires and if ever there was a seasonal trade, this is looking like it.
Director Daniel Plants continues to buy cosmetic laser company, Cutera CUTR. I suppose after all this work from home, stay at home, gym closing, Peleton loving world, you might want to pop by your favorite plastic surgeon or esthetician and get zapped with the laser. Plants certainly thinks so as he bought 59,769 shares at $14.90.
Piper Sandler analyst O’Brien thinks CUTR is a compelling buy at these levels. A new system is set to hit the market in the third quarter and has a target of $18. That seems low to me as before the pandemic, CUTR hit $36. This looks interesting and we’d be buyers at these levels.
CEO Fertitta continues to accumulate Red Rock Resorts, RRR. We blogged about that last week and it doesn’t look any better this week. Lorenzo Fertititta has been buying Red Rock Resorts for months now. Each time I look at it and say to myself what does he see in the luxury off the strip Vegas property?
RRR is near the famous Red Rocks outdoor area in Las Vegas and unless you prefer 4 Star linen sheets to RVs and tents, it’s hard for me to see why you would go to Vegas and stay so far away from the bright lights. RRR is a pure play on return to Las Vegas- not online gambling.
Chief Learning Officer, Grunau bought 70,000 shares of APi Group at $14.74. I don’t know what a chief learning officer does but he should learn how to tell a cohesive story about what AGP does. As far as I can see it is a serial acquirer of a hodge podge of dozens of safety and industrial services in over 200 locations. None the less in this charged market, I can see it going higher. It’s a big buy.
Grunau was president and then owner of Grunau Company, a mechanical and fire protection contractor in Milwaukee, Wisconsin. Shortly after APi Group purchased Grunau Company in 2006, Grunau joined APi Group as its chief operating officer, a position he held until 2011. In 2016, the opportunity to return to APi Group and join the senior leadership team in a concerted effort to help all employees across the organization develop their leadership skills and reach their full potential, represented the perfect fit for Grunau’s experience and skill set. I still don’t see it.
XAIR Beyond Air Inc., Chairman of the Board and Director Cary bought 20,000 at $5.55 and Director Carey bought 60,000 shares at $5.63. Beyond Air is a clinical-stage medical device and bio-pharmaceutical company using nitric oxide to treat respiratory and other diseases of this nitrous oxide out of room air. They are even exploring the palliative use against Covid-19. I don’t know what the total addressable market is for nitrous oxide but the market opportunity at Grateful Dead concerts is a big one. We are not buying XAIR.
We wrote last week, “Do you want to go to a party?” This week the party ended as PRTY came down to earth, trading at $2 again. If you missed the 35% run up last week, you have a chance to bet again. PRTY Party City Director Matthews must think so as he bought 250,000 shares at $2. This is the second insider buying large amounts of this embattled retailer facing the perfect storm. The pandemic is tough on most brick and mortar retailers but those in the party supply business face a triple whammy; siege from Amazon, lock downs, and restrictions on social gatherings. This may be just too much for Party City. I don’t see lightning striking twice here in the same place.
Smile Direct Club SDC ought to be a great stock but it’s not. Teeth straightening for the masses is a good story but this Invisalign knock off company has been a poor performer since its IPO at $23. Bears have latched on and haven’t let go. Perhaps Director Wallman’s conviction will prove contagious. This is his third buy, and also the largest. He bought 53,000 shares at $7.80. Perhaps Wallman knows something the short’s don’t. Short interest is 35%.
If getting a quick fix at a low cost is the only factor in deciding between Smile Direct Club vs. Invisalign, Smile Direct is the clear winner. Treatment with Invisalign costs between $3000 and $8000 and takes an average of 12 to 18 months, depending on the severity of the problems. Smile Direct can take as little as six months and charges about $1850 for treatment. I like buying short squeeze candidates when insiders are buying.
Upland Software UPLD Director May bought 10,000 at $33.72. Upland recently completed at secondary at $34. The proceeds from the offering will be used for continuing operations and for their acquisition strategy. Upland Software bills itself as offering a unified operating platform that helps companies drive digital transformation in four key areas, customer experience management, enterprise sales and marketing, project & IT management, and document workflow. If you’re not any closer to understanding what UPLD does, understand their revenue was up 35% in the second quarter, no small feat in the midst of a pandemic. The pullback from the secondary looks like a reasonable buying opportunity.
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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. We also don’t give a lot of credit to new directors buying stock for the first time. Someone pays you $200k per year to attend a Zoom meeting 4 times a year, you probably want to own some stock. It’s basically the house’s money you are playing with. This is very different than a director who’s been on the board for several years making a $200k buy out of the blue. So if you see a director buy that we didn’t write about, that might be why.
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.
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so please respect that .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.
Harvey Warren Sax
Founder and Manager of Alpha Wealth Funds
Hedge Fund Insomniac Guy
hsax@alphawealhfunds.com
wk (435) 658.1934
cell (435) 962.4554
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