Earnings season is almost over and with it the blackout period that restricts corporate insiders from buying their own company’s stock. Animal spirits are lighting up the market as insiders are adding fuel to the fire with the biggest increase in buying since the March lows. Normally insiders buy their stock when it’s cheap and you see less buying when the market is making new highs. Not this time!
Barry Diller shook up the online gambling world with his Interactive Corp IAC disclosure that it had gone over the 10% reporting threshold with its most recent purchase of 9,705,785 shares of MGM at an average price of $18.50 That purchase triggered the reporting threshold and he had to disclose his ownership of 12% of MGM and 59,033,904 shares. By the end of the week, he was already up 17.89% on the latest purchase getting this week’s Insider Buy of the Week. What we don’t know is how much he paid for the balance of his holdings. MGM insiders were big buyers of the stock back in April from $10.40 to $11.94. In hindsight I bet Diller was buying with them but we may never know as he didn’t have to report those purchases on Form 4. Now that he’s a 10% shareholder we’ll know every twist and turn within 48 hours. Within days, Michael Eisner, former longtime CEO and Chairman of Disney, and board member of Interactive Corp dropped a Form 4 showing his vote of confidence in the deal by buying 40,555 shares of IAC at $122.85.
Ironically I nailed it when I tweeted on August 5th to short Draft King $DKNG Too much looming competition. Online gaming is a race to the bottom and with big spending to get there. Lack of fans, lack of sports, sick fundamentals Short $DKNG. Right now there is a lot of enthusiasm but this is going to be a game for the deep pocketed and they plan on losing a lot of money to buy market share. JP Morgan came out with an in depth report on the about to explode online gambling market. With the Supreme Court ruling clearing the way, most people expect cash strapped State governments to rapidly legalize and roll out online gambling. Everyone wants to get a piece of this new industry and I imagine it will play out just like the hype with the highly regulated and taxed Cannabis market. For now you can bet alongside with them and parlay some stock market money but real profits will be hard to come by. I’d buy the newly public IAC Corp. Dilller said. “with the separation of Match Group from IAC, and ‘new’ IAC emerging with $3.9 billion of cash, no debt, and its opportunistic zeal intact, we are energized and excited to make this investment in MGM. What initially attracted us to MGM, besides its leadership in leisure, hospitality and gaming, was an area that currently comprises a tiny portion of its revenue – online gaming,”
Do you want to go to a party? This week Party City had their own little party on Wall Street and you were all invited if you paid any attention. As good as this MGM trade was there were even bigger standouts last week. Can you think of a worse business to be in than the party supplies business? That’s not what hedge fund manager Clifford Sossin thought. He bought 815,824 shares of PRTY for $1.93. By the end of the week he was up a whopping 34.88%. It pays to buy when there is blood on the streets. You just don’t know when the bleeding will stop, though. It’s a matter of just holding on and surviving until there’s a vaccine or a therapeutic. That won’t be a piece of cake either as PRTY is bleeding money with $1.5 billion in long term debt.
Hedge fund manager, Sosin, was at it again when he bought just under $5 million worth of Cardilytics at $70.45. CDLX has not had a good year. 2nd quarter earnings were negative .$.38 and revenues were 59% of the prior year over year quarter. CDLX specializes in loyalty programs aka reward programs with financial institutions. It just goes to show you the discretionary portion of the consumer’s mind was busy with anxiety from the virus while Visa card and Master card reported near 83% of the activity of the prior year. CDLX has been a steady growth stock, but candidly I can’t get enthusiastic about bank rewards programs. Sosin made over 16% for the week on this purchase but before you get too excited on his brilliance, it looks like both purchases were averaging down.
Averaging down, though, is a sign of the great investors. Buffett is known for doing this, sticking with a position and buying more on the way down until his cost basis is way low and when the stock recovers he and his investors get rich. It’s harder than it seems, though, as at the time you feel like you’re throwing good money after bad- AND you may be doing just that.
Just when you think I nailed it by getting out near the top, Owens and Minors insiders remind you how the big money is made by buying and holding. We traded OMI really well as the last insider buy was back in May at $7.1. We rung the register right before 2nd quarter earnings at $14.81. That looked positively brilliant as the stock sold off as low as $12.75. That’s when insiders got all over it buying 50,000 shares between $12.96-$13.67. OMI closed the week at $16.72, up over 28%. It didn’t help that Cramer had the CEO on his show either. Does anyone know how to get Cramer’s guest list? That seems like a worthwhile endeavor. Who’s his booker? To make me fill a little better about leaving money on the table, I sold short the September $12.5 puts for pocket change.
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. The recent MGM, Penn National Gaming tie up with BarStool Sports, and Golden Nuggett SPAC, LCA Landcadia Holdings pin action around online gaming made me go back and dig a bit into the SEC filings. If you ever want to know anything about a company, just go direct to the 10K and 8Ks and that’s where you will find the truth buried. “All of our casino properties are dependent upon attracting Las Vegas residents as well as out of town visitors. As a result of our concentration in the Las Vegas regional market, we have a greater degree of exposure to a number of risks than we would have if we had operations outside of the Las Vegas valley.” There you have it, a pure play on return to Las Vegas- not online gambling.
Fertitta, not to be confused with restuaranteur,Tilman Fertitta, who also owns the Houston Rockets and the Golden Nuggett online gaming SPAC, Landcadia Holdings is putting a lot of money into Red Rocks Resorts. His latest buy was 705,000 shares at $14.12 and he is up 14.87% on the week for it. Granted all this is confusing, throw in the virus with online gambling and I really haven’t seen this much action in casinos since the 80’s when Trump and Carl Icahn were buying. Investing now in the future of online gambling is truly a game of chance.
Expedia Director George Battle bought 12,300 shares at $81.38. EXPE quickly bounced 6.57% to close at $86.73. I’d be all over this depressed online operator with any pullback. Expedia is a force to be reckoned with in all forms of travel from airline booking to Hotels.com. Travel will definitely come back and with it Expedia.
Vivint Smart Home CEO Pederson went animal on us this week, buying up smart home player Vivint on two consecutive days last week paying between $17.64 and $19.36 per share to accumulate nearly $1 Million worth of stock. This added to his five prior purchases in May of this year when he was buying at $11.58 to $12.93 per share. Normally that tells you things are going well at the company and expected to get even better. This is just the kinds of buying that augers well for insiders to follow. All the more compelling after Google’s shocking $650 million investment in home alarm competitor ADT. You would think the combined forces of ADT and Google will eat Vivint’s lunch but that didn’t back Pederson away from the table. The smart home market might be just big enough for both of them.
On July 22nd, JP Morgan analyst Paul Costner upgraded VVNT to overweight on the back of a one month 14% price drop. After beating 2nd quarter consensus estimates, Costner boosted his target price to $22 and added it to the Analysts Focus list. Morgan Stanley wasn’t convinced and initiated it at equal weight. Although the Company has a recurring revenue model, growth was modest, around 6.5%, and the company is losing money on a GAAP basis. It’s highly indebted. You always have to wonder what’s behind insider’s motivations. Is Alexa looking for its home monitoring partner? That certainly has to be on their mind after Google’s kick in the pants. Wall Street is rightfully skeptical here and Pederson was flat on the week overall on his buying. This is one, that if it fades off, I’ll start to buy or sell puts at a lower strike price. I don’t want to compete against Google unless its riding on the coat tails of Amazon.
Insurance stocks as a group have not performed well in the aftermath of the Fed’s zero interest rate policy. Although the mark to market portion of their bond portfolio has skyrocketed because of low rates and the Fed’s backstop, future earnings have plummeted from the low rate policy. Insurance companies are highly dependent on bonds providing a predictable level of income to pay off future claims. The actual mortality rates from the pandemic have not been too adverse on life insurance providers because the disease inflects older people the worse and the actuarial assumptions are still holding up. Several insurance executives continue to buy their stock with limited short term success.
This week we saw Director Davis make a monster purchase of $30,317,001 of Axis Capital Holdings AXS with 700,000 shares at $41.31. By the end of the week, he was up 6.21% Craig Lindner bought 12,000 shares of American Financial Group, AFG, at $63.20 up 6.98% for the week. The only loser in the group was Director Todman with Prudential PRU on his buy of 2500 shares at $71.08. Until the Fed changes its zero interest rate policy insurance stocks for the most part will be moribund.
My head scratcher of the week was the dismal performance of the home mortgage gorilla, Rocket Companies. Rocket went public in a hot market with the biggest IPO of the year to date. They priced at their IPO at $18 per share which was below the $20-$22 per share that was originally being targeted and sold less shares than was previously expected. Stunning to me as Quicken Home Mortgage is to the mortgage industry what Netflix was to traditional TV and cable. Insiders seemed perplexed too as CEO and founder Jay Farmer bought 204,000 shares at $18 as well as Director Tellem buying 35,000 at $18. RKT closed out the week at $18.96 in spite of announcing preliminary 2nd quarter revenue up 152% compared to 1st quarter 2020 and 300% compared to second quarter 2019. In addition, RKT reported preliminary Q2 adjusted net income $2.8B, an increase of 335% compared to first quarter 2020 and 995% compared to second quarter 2019. Adjusted EBITDA of $3.8B grew 317% compared to the first quarter of 2020 and 868% compared to the second quarter of 2019. Closed loan origination volume of $72.3B increased 40% compared to the first quarter of 2020 and 126% compared to the second quarter of 2019. HOLY MOLY- I would have thought it would double on these kinds of numbers.
What is wrong with Rocket?
Upwork Director Gregory Gretsh continues to buy large dollar amounts of gig economy upstart freelancer/independent contractor model Upwork. This time he bought 547,844 shares of UPWK at $14.71. This is one of our largest holdings. We are big fans of Upwork and use their services repeatedly. Its a great model. They have a couple of direct competitors,Israeli based Fiverr, and Freelancer.com.Since neither Fivvr or Upwork are yet profitable, conventional fundamental analysis may not be useful and instead we look at comparative analysis.
Fiverr has been a stunning out performer. During the last 52 weeks, Fiverr has outperformed the S&P 500 by 324% while Upwork has underperformed by 16.75% Fiverr has twice the market cap, at $3.7 Billion market cap to Upwork’s $1.78 Billion. Why is there such a difference between the two models? Its clear that this market rewards growth over all other metrics.
| UPWORK | FIVERR | |
| Market Cap | $1.779 Billion | $3.772 Billion |
| 12 Month Rev | $328.12 | 138.68 |
| Revenue growrth rate | 5.20% | 38.01% |
| Year over year quarter revenue growth rate | 17.87% | 81.90% |
| P/E | -84.35 | -64.31 |
| EV/EBITDA | -117.04 | -113.93 |
| EV/FCF | 62.86 | -244.96 |
| P/S | 5.42 | 35.22 |
Upwork, Freelancer, and Fiverr are the three most active and popular freelancing websites worldwide. Upwork has over 12 million freelancers registered with it, as well as 5 million clients. Some 3 million jobs are posted every year, with USD 1 billion changing hands. It is the largest freelancing site in the world.
Fiverr has 3 million services listed on their website. Unlike other freelancing sites where clients post their projects and freelancers bid on them, on Fiverr, freelancers list their services and rate them between USD 5 and USD 500. Clients with projects can then approach the freelancers and directly negotiate for their services.Freelancer has 21 million users across the world. It won the Best Employment Website award for two consecutive years (2015 and 2016).
Zix Corp -if you’re looking for an easy to use way to encrypt e-mail, it will be harder to find a better platform. Encrypted email seems like a no brainer and I’m under the assumption that most email services have built in encryption. So why do I constantly get email from banks, service providers, and the like all using different methods of secure email?According to Zix 10K, “The main differentiation for Email Encryption in the marketplace is our exceptional ease of use. The best example of this is our ability to provide transparent delivery of encrypted email. Most email encryption solutions are focused on the sender. They typically introduce an added burden on recipients, often requiring additional user authentication with the creation of a new user identity and password. We designed our solution to alleviate the recipient’s burden by enabling the delivery of encrypted email automatically and transparently.
We view our primary competitors in the email security space to be Proofpoint Inc., MimeCast, and Barracuda Networks. Technically, while these companies offer advanced threat protection against email attacks and “send-to-anyone” encrypted email, we believe that Zix offers superior customer service and unparalleled benefits that come from access to The Directory, use of our Best Method of Delivery protocol, and the industry’s only transparent email encryption. Nevertheless, some of these competitors are large enterprises with substantial financial and technical resources that exceed ours. We are also competing against other value-added cloud distributor platforms such as PAX8 and Sherweb.”
The purchase of 50,000 shares of ZIXI at $6.10 by Chief Revenue Officer, Di Leo, gives some credence to their claims. With increased demand for security because of the pandemic demand for work at home, Zixi is in a prime position to benefit from this. Most work at home employees have nowhere near the level of security they had at the office. We have a position here and are watching closely for evidence of our thesis playing out.
Clear Channel is one of the leaders in billboard and outdoor advertising. It’s heavily indebted and the stock has been a terrible under performer.It’s striking when an insider buys $473K of a penny stock, at $1.18. On August 6th, CCO received NYSE listing warning notice as a result of the company’s common stock being less than $1.00 per share over a consecutive 30 day trading period. We are staying away from this for now.
Camping World Marcus Lemonis continues to buy his stock at all time highs. Even though RV demand is through the roof and Camping World has tripled in price, I think people still underestimate the amount of people flocking into the outdoors. I’ve been camping in the Uintas twice in the last month and I swear it seems like there are 10 times more people crowding into the 2nd largest wilderness area in North America. CWH reported great 2nd quarter numbers and the stock sold off from $42 range to the low $30s where CEO Lemonis bought over $400K worth of CWH at prices from $32.29 to $33.82.
Harley Davidson CEO Jochn Zeits continues to bet big on iconic Harley Davidson. He bought 71,450 shares of HOG at $27.86. It seems he is doing pretty well with his investments as he bought 51,020 back in May at $19.52. The market must be seeing something I can’t as Harley’s sales plummeted in the 2nd quarter. The aging baby boomer is not buying Harley’s at the historic rate. The Company is working on a line of ebikes, which are very hot but the line is not even available for sale yet.
Lots of buying this week and it’s an exciting time to be in the market. Stay tuned on Twitter for updates.
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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.
This blog and emails are solely for educational purposes and the author’s own amusement. It is also copyrighted 
Harvey Warren Sax
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Hedge Fund Insomniac Guy
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