Insiders Crush Markets- Average Buy up 8.11% vs.-0.77% for the S&P 500

Director Ortale bought 266,113 shares of Waitr Holdings, a 2nd tier restaurant delivery service. WAITR was on their way to the waste dump of failed startups when the Pandemic breathed life into the business model. Now I wish they would expand to Park City. I should have paid heed when restauranteur and Houston Rockets owners Fertitta Tillman bought 1,000,000 shares at $1.42 back in August. Can this business model survive long term? Actually, does this matter when you could have made 32% in a week following Director Ortale? The company reported its 2nd consecutive quarter of continued profitability and operating cash flow.

PLx Pharma Chairman bought 264,900 shares at $3.78. Insiders have been steady if not huge buyers of stock all year, mostly at higher prices. PLXP has a Food and Drug Administration (FDA) approved lead product, Vazalore 325 mg. This is a novel formulation of aspirin that uses the PLxGuard delivery system to significantly reduce acute GI side effects while providing antiplatelet effectiveness for cardiovascular disease prevention as compared with the current standard of care, enteric-coated aspirin. Go figure aspirin has a new song and dance. These shares were purchased as part of a private placement and warrant package priced at $3.78 per share with a five-year warrant at $4.31 per share. This was a slam dunk for now, up 35%. We can’t chase this.

Chairman Zalik bought 1,105,220 shares of fintech online lender GreenSky, Inc. He was up 17.90% on this buy. Is there anything left? GSKY offers merchants immediate financing for their customers. They boast of 16,000 active merchants, 3.5 million satisfied customers with $26 Billion of funded loans. Home Depot is their largest single merchant customer, representing about 4% of total revenue for 2019. Affiliates of Renewal by Anderson represented 16% of revenues. The company has a concentration in the booming home improvement market.

Loans funded by their bank partners are not secured by collateral. While the company is not generally responsible for defaults by their customers, they have agreed to fund an escrow in order to provide a buffer against defaults. Perhaps this is what Citi analyst Cyganovich was referring to as complicated financials. They say their not responsible for defaults yet the 10k says they could lose money from them. It’s hard to have this both ways.

GSKY had a couple of recent downgrades. On November 16th Citi analysts reduced his price target from $4 to $3.50 and kept a sell rating on the stock following Q3 results. His cautious view was based on the company’s complicated financials and concentration risk in both merchants and bank partners.

In their 10k, they state that consumers who transact on our platform typically have super-prime or prime credit scores and find financing with promotional terms to be an attractive alternative to other forms of payment, particularly in the case of larger purchases. We provide a completely paperless, mobile-enabled experience that typically permits a consumer to apply and be approved for financing in less than 60 seconds at the point of sale.

We believe our technology platform creates meaningful barriers to entry for other providers attempting to reach the same scale with merchants, consumers and funding partners. These attributes include:

•Intuitive user interface. We designed our digital platform to be simple and easy to use.

•Paperless application and documentation environment. Our platform populates applications using a mobile device’s location data and a scan of the consumer’s driver license, eliminating unnecessary effort. Once the application is approved, a digital loan agreement is delivered in real-time, generally back to the same mobile device. The consumer accepts the terms of the agreement through an electronic signature, eliminating the need for a physical signature.

•Capacity to support a wide range of promotional financing solutions. Our technology enables merchants of all sizes and their sales associates to select among several promotional financing solutions based on customer preferences.

•Significant flexibility and processing capabilities. Our technology stack includes an “Application Tier” (multiple user-facing applications) and a dynamic “Database Tier” (real-time algorithmic underwriting and processing functionality, data archiving, lookup and reporting). Together, this results in a comprehensive technology solution that supports the full transaction lifecycle.

•Real-time credit decisions and placement with a Bank Partner. We developed an algorithm that underwrites potential loans against the specified credit criteria of each of our Bank Partners. Once loan applications are underwritten and matched against the Bank Partners’ credit criteria, a proprietary digital “round-robin” system allocates each unique approved loan to a Bank Partner.

Bottom line, we are going to nibble at this one. We are still holding a large position in Rocket Companies which is not doing anything either in a very hot tape.

Director Klein bought 700,000 shares of MultiPlan Corp at $7.11 share. Muddy Waters, well known short-seller released a negative report, crushing the stock down 10%. It claims that their recent acquisition of HST, a $140 million purchase was a desperate attempt to replace lost revenues United Healthcare. The purchase of 700,000 shares is further clouded by the Company’s filing to sell633.7M shares on October 30th for selling shareholders. Citicorp analyst Grosslight initiated with a buy rating and price target of $10 saying the company was mispriced and misunderstood. Sometimes if it’s too complicated, it’s just not worth the effort trying to understand it. That’s where we’re at with MPLN.

Director Drake bought 12,350 shares of AtriCure Inc at $40.54 per share. ATRC As a leading provider of innovative technologies for the treatment of Atrial Fibrillation (Afib) and related conditions, electrophysiologists and cardiothoracic surgeons around the globe count on AtriCure to deliver best-in-class solutions that can treat even the most complex cases. Our Isolator® Synergy™ Ablation System is the first and only medical device approved by the FDA for the treatment of long standing persistent Afib, our AtriClip Left Atrial Appendage (LAA) Exclusion System products are the most widely used LAA management devices worldwide, and we are expanding into pain management therapies. We invest in innovation, clinical science, and education to focus on improving lives for our patients worldwide.

JP Morgan said they would be a buyer of AtriCure now as the Coverge approval expected in 2021 would be a major catalyst. He went on to say on November 12th that the market opportunity for Convergent is significant with 3.5 M persistent atrial fibrillation patients in the U.S. today. The Company stronger Q3 revenue numbers than consensus and they narrowed their loss considerably better than consensus. Their 4th quarter guide was light but it’s not a surprise that all medical procedures have been delayed or postponed due to the Pandemic when possible.

ATRC is up modestly from $42.46 prices Drake paid. We are buyers of this name.

A Director, Olayahg bought $1.385M of Morgan Stanley at $55.40 per share. We won’t chase MS but the stock has performed very well in recent months.

A name we are buying is MBI. CEO Fallon purchased 100,000 shares of this leading muni bond insurer at $6.17. The backdrop for states and municipalities’ debt issuance is very bullish and with a Democratic President, the prospects of continued backdrop support are greater than they would have been under a Republican administration. Add to that mixture, the fact that taxes are likely going up, rates are persistently low, the demand for muni bonds should be strong.

Several insiders bought shares in Reynolds Consumer Products at prices between $29.37 to $29.86. The largest purchase was the CEO buying 16,500 at $29.86. With nearly a 3% dividend yield, steady insider buying, and a reasonable valuation, REYN is a low-risk buy.

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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