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Miserable Week for the Bulls 9-16-22

Harvey Sax

Curious how well insiders are doing with their buys? Scroll through the blog posts and see for yourself

The market declined 5% last week, capping off a victory for the bears. The vaunted 3900 resistance line on the S&P 500 was penetrated adding to the conviction of the chartists that there is more room below. Insider buying was anemic as expected as the earnings blackout period for the 3rd quarter is well underway.  The few insiders buying fared relatively better only losing on average.07%.

There are always a lot of things to worry about, but the chief culprit is the rising interest rate backdrop engineered by the Fed to reign in inflation. Soft landing or hard landing is the central question on most professionals’ minds, but in my experience, it is a common mistake to tie the economic backdrop to market returns.  There is no statistical evidence that recessions are actually bad for equity performance. In fact, there is plenty to the contrary. Markets like cheap money, and it’s as simple as that.  Bonds have offered little competition for equities for several years and, despite all the Fed tough talk, still offer breadcrumbs to return hungry investors.  Just look at the U.S Treasury’s latest Daily Yield Curves. 

Nonetheless, markets will go down for a while as all the pundits tell you they should. After all, even I agree.  Don’t fight the Fed.  I don’t recall ever seeing the Fed tightening into what looks like a looming self-engendered recession.  They have little impact on the root causes of this round of inflation and should just take a lesson from the discredited medical practice of bleeding the patient to cure them. Learn from your mistakes.

We do pay attention to the Macro, but we pay particular attention to insiders buying their own stock. I like to say that making money in the market is all about people with conviction taking money from those that lack it. There is no investor with more conviction than the corporate insider buying material amounts of his own company’s stock in the open market.

 

Name: Mellody L Hobson
Position: Director
Transaction Date: 2022-09-15 Shares Bought: 54,750 Average Price Paid: $92.58 Cost: $5,068,536.00
Company: Starbucks Corp (SBUX)

Name: Richard E Allison Jr
Position: Director
Transaction Date: 2022-09-15 Shares Bought: 10,000 Average Price Paid: $92.53 Cost: $925,320.00
Company: Starbucks Corp (SBUX)
Starbucks Corporation is a specialty coffee producer, marketer, and retailer. Americas, China/Asia Pacific (CAP), Europe, Middle East, Africa (EMEA), and Channel Development are the company’s segments. Through company-oriented stores and licensed stores, the Americas, CAP, and EMEA segments provide coffee and other beverages, complementing foods, packaged coffees, single-serve coffee items, and a targeted selection of merchandise. Outside of its company-operated and licensed locations, the Channel Development division includes sales of packaged coffee, tea, and ready-to-drink beverages. Evolution Fresh, Teavana, Tazo Tea, and Seattle’s Best are among the company’s brands. On November 4, 1985, Jerry Baldwin and Howard D. Schultz created Starbucks, which is headquartered in Seattle, Washington.

Since 2019 and since 2000, Mellody Hobson has served as President and Director of Ariel Investments, LLC, an investment management company. Since 2006, she has also held the position of chair of the board of trustees for the Ariel Investment Trust, a registered investment firm that receives advice from Ariel Investments. Since 2018, Ms. Hobson has held the position of vice chair of Starbucks Corporation, where she has been a director since 2005. She served as a director of DreamWorks Animation SKG, Inc. from 2004 to 2016, as well as The Estée Lauder Companies Inc. from 2005 to 2018. Ms. Hobson participates in a wide range of civic, charitable, and professional organizations. She serves as a director of the Chicago Public Education Fund, chair of After School Matters, which offers high-quality after-school programs for Chicago teens, a member of the executive committee of the board of governors of the Investment Company Institute, a board member of the George Lucas Education Foundation.

Allison graduated with a B.S. in business administration from the University of North Carolina at Chapel Hill. He then went on to the Kenan-Flagler Business School at UNC, where he obtained an MBA and was recognized with the Norman Block Award and the Dean’s Scholar designation. He also sits on the advisory board at the UNC Kenan-Flagler Business School. Allison was appointed to the Starbucks Corporation board of directors in September 2019.

Opinion: Insiders are back buying in a big way at Starbucks. Starbucks raised its annual global revenue growth rate to 10%-12%, and these insiders followed up with confidence-inspiring purchases. Considering China has been mostly shut down to Covid, these goals might be achievable, but they seem like a stretch. Starbucks will need this growth to maintain its lofty forward 27 P. E. ratio. I have to believe if we do go into a recession $5 latte every day will be one of the first things some consumers cut back on.

 

Name: Robert J Manning
Position: Director
Transaction Date: 2022-09-08 Shares Bought: 30,000 Average Price Paid: $85.50 Cost: $2,565,000.00
Company: Stanley Black & Decker Inc (SWK)
In the United States, Canada, the rest of the Americas, France, the rest of Europe, and Asia, Stanley Black & Decker, Inc. operates companies related to tools, storage, and industry. Its Tools & Storage segment provides both professional products, such as corded and cordless electric power tools and equipment of the highest caliber, as well as pneumatic tools and fasteners, as well as consumer products, primarily under the BLACK+DECKER brand, including corded and cordless lawn and garden products and related accessories, home products, hand tools, power tool accessories, and storage items. This market sector offers its goods to professional end users, distributors, dealers, retail customers, and industrial clients in a variety of industries through retailers, distributors, dealers, and a direct sales force. The company’s Industrial segment sells and rents custom pipe handling, joint welding, and coating equipment for use in the construction of large and small diameter pipelines, as well as providing pipeline inspection services.

After 37 years with MFS Investment Management, Mr. Manning will step down as Non-Executive Chairman in March 2022. MFS expanded under his guidance into a global investment manager capable of delivering value for individual and institutional clients globally. Mr. Manning joined MFS in 1984 as a Fixed Income Research Analyst. He rose through the ranks of the firm’s Investment division, serving as Fixed Income Portfolio Manager, Fixed Income Strategist, and Director of Fixed Income Research. He was appointed Chief Executive Officer and Chief Investment Officer in 2004. Mr. Manning was appointed chair in 2010 and co-CEO in 2015. Since 2017, he has served as Executive Chairman, and since 2021, he has served as Non-Executive Chairman. Mr. Manning, 58, serves on the Compensation and Talent Development Committee as well as the Corporate Governance Committee.

Opinion: It’s hard to get excited about this stock. I’m on the sidelines. Every stock is attractive at some price, though I’m not a fan of growth by acquisition and SWK has $8.7Billion of goodwill on its balance sheet.

 

Name: Tobias Lutke
Position: Director
Transaction Date: 2022-09-13 Shares Bought: 4,482 Average Price Paid: $75.39 Cost: $337,898.00
Company: Coinbase Global Inc. (COIN)
The technology and financial infrastructure for the crypto economy in the United States and elsewhere are provided by Coinbase Global, Inc. The company provides institutions with a market with a pool of liquidity for transacting in crypto assets, the primary financial account in the crypto economy for retailers, as well as technology and services that allow ecosystem partners to create crypto-based applications and securely accept crypto assets as payment. Based in Wilmington, Delaware, and established in 2012, Coinbase Global, Inc.

In September 2004, Tobias Lütke joined the board of directors of Shopify, which he helped co-found. Mr. Lütke has held the position of CEO since April 2008. Mr. Lütke served as the organization’s Chief Technology Officer from September 2004 until April 2008. Mr. Lütke produced many well-known open source libraries, including Active Merchant, while serving on the core team of the Ruby on Rails framework. Mr. Lütke presently has a position on Coinbase’s board (Nasdaq).

Opinion: Tobias continues to purchase shares in Coinbase in spite of the short sellers. I have reservations about shorting stock insiders are buying. Although everything tells me Coinbase is grossly overvalued, but that doesn’t mean it’s a good short. Something has to fundamentally change in the narrative. Right now Coinbase is the defacto winner in digital wallets for the crypto era.  It’s the name brand, the one people trust and they are rapidly expanding their offering in the face of innovative competitors.

 

Name: Daniel L Florness
Position: CEO
Transaction Date: 2022-09-14 Shares Bought: 5,000 Average Price Paid: $47.85 Cost: $239,250.00
Company: Fastenal Co (FAST)
In the United States, Canada, Mexico, North America, and globally, Fastenal Company and its subsidiaries participate in the wholesale distribution of building and industrial materials. Under the brand name Fastenal, it sells fasteners as well as associated construction and industrial materials. Threaded fasteners, bolts, nuts, screws, studs, and associated washers are among the company’s fastener items that are utilised in building projects, manufactured goods, machine maintenance, and machine repair. Additionally, it provides a variety of hardware and supplies, such as pins, equipment keys, concrete anchors, metal frame systems, wire ropes, strut products, rivets, and associated accessories. The business offers its products and services to the manufacturing sector, which includes original equipment manufacturers, maintenance, repair, and operations, as well as the non-residential construction sector, which includes general, electrical, plumbing, sheet metal, and road contractors.

The role of President, Chief Executive Officer, and Director of Fastenal Co. is held at the moment by Daniel Lars Florness. Additionally, he serves on the boards of Fastenal Europe Ltd., PlastiComp, Inc., Gundersen Lutheran Health System, Inc., and H.B. Fuller Co. Mr. Florness formerly held the positions of Senior Manager at KPMG LLP as well as Senior Manager at KPMG Peat Marwick LLP. He graduated from the University of Wisconsin with a bachelor’s degree.

Opinion: Fastenal reported sales were up 21% in August yet the stock is making a 52-week low. Clearly, the market is anticipating a major slowdown in building and construction-related jobs although the Company is not yet experiencing it based on these latest results. A month earlier In earnings call presentation slides, Fastenal said, “Net sales grew 18.0% and pre-tax profit grew 20.8% versus 2Q21. Demand remained generally healthy, but there were certain signs of softening that emerged in May and June. The market is a forward-looking voting machine and investors are betting on a downturn.  HomeDepot CEO said on September 16th,   “There is a fundamental mismatch between supply and demand in housing and that is driving the housing market, he added. “Our business through Q2 remains strong,” he said.

Florness has a mixed record of timing his buying and selling since he was appointed CEO in 2016.  I don’t see him as a reliable indicator and no one at the company is buying.

 

Name: M Jay Allison
Position: CEO/Chairman
Transaction Date: 2022-09-16 Shares Bought: 28,800 Average Price Paid: $19.50 Cost: $975,000.00
Company: Comstock Resources Inc (CRK)

Name: Morris E Foster
Position: Director
Transaction Date: 2022-09-16 Shares Bought: 14,000 Average Price Paid: $18.16 Cost: $254,240.00
Company: Comstock Resources Inc (CRK)
Comstock Resources, Inc. is an independent energy company that predominantly operates in North Louisiana and East Texas, where it acquires, explores, develops, and produces oil and natural gas. The business has proven reserves totaling 6.1 trillion cubic feet, or the equivalent of natural gas, as of December 31, 2021. Additionally, it holds stakes in 2,557 active oil and gas wells. The business was founded in 1919, and it has its headquarters in Frisco, Texas.

The founder of Midwood Petroleum, Inc. is M. Jay Allison. Mr. Allison serves as Comstock Resources, Inc.’s chairman and chief executive officer. Mr. Allison serves on the boards of Tidewater Marine, Inc., Legacy Christian Academy as chairman, and Baylor University as a member of the regent’s board. M. Jay Allison previously held the positions of Chairman for Bois d’Arc Energy, Inc. and Attorney with Lynch, Chappell & Alsup PC. Both his undergraduate and graduate degrees are from Baylor University.

Entrepreneur Morris E. Foster is now the Chairman of Mill Creek Resort, the Chairman of Stagecoach Properties, Inc., the Chairman of Stagecoach Holding LLC, and the President of Exxon Upstream Development Co. In addition, Mr. Foster serves as a director of Comstock Resources, Inc., Scott & White Healthcare, United Way of the Texas Gulf Coast, and First State Bank in Temple, Oklahoma. He is also a member of the Society of Petroleum Engineers, Inc., the American Petroleum Institute, Inc., and the Board of Regents at Texas A&M University. He previously held positions at Exxon Mobil Corp., ExxonMobil Development Co., ExxonMobil Production Co., and Exxon Co. USA (all of which were Exxon Mobil Corp. subsidiaries), as well as Director at the University of Texas Investment Management Co.

Opinion: This is CEO Allison’s largest open market purchase. This is notable since the stock is near an all-time high. Insiders buying at the top sends a clear message to the market; business is good and is going to stay good. The fundamentals for natural gas have never been better, but I would expect some near-term price weakness as we are in the shoulder season when gas usage is at its lowest since cold weather is not a factor yet and air conditioning consumption during the summer is tapering off.

Russia weaponizing the gas market has probably permanently changed the dynamics of the market. Natural gas is selling in Europe for 10X the domestic U.S market price where supply is abundant, but export is limited due to a lack of pipeline infrastructure and LNG export facilities. This will take many years to change although much of the current export market has been redirected to Europe.  The electrification of the transportation fleet will cause the usage of electricity to rise dramatically in U.S households.  We couldn’t be more long-term bullish, and these purchases from the long-time CEO at near record prices reaffirms our optimism.

These are bullets from the Company’s September investor presentation



Name: Thomas L Carter Jr
Position: CEO/Chairman
Transaction Date: 2022-09-15 Shares Bought: 24,631 Average Price Paid: $16.30 Cost: $401,586.00
Transaction Date: 2022-09-12 Shares Bought: 75,000 Average Price Paid: $16.29 Cost: $1,221,553.00
Transaction Date: 2022-08-04 Shares Bought: 50,000 Average Price Paid: $14.88 Cost: $744,172.00
Company: Black Stone Minerals L.P. (BSM)
Oil and natural gas mineral interests are owned and managed by Black Stone Minerals, L.P., and its subsidiaries. It has mineral rights to over 16.8 million gross acres, nonparticipating royalty rights to 1.8 million gross acres, and overriding royalty rights to 1.7 million gross acres spread throughout 41 different states in the US. The company had a total estimated proved oil and natural gas reserve of 59,824 barrels of oil equivalent as of December 31, 2021. Black Stone Minerals, L.P., a Houston, Texas-based company, was established in 1876.

From November 2014 through June 2018, Mr. Carter held the positions of President, Chief Executive Officer, and Chairman of the General Partner. BSMC, our predecessor, was established by Mr. Carter, who also served as President, Chief Executive Officer, and Chairman of Black Stone Natural Resources, L.L.C. (“BSNR”), the former general partner of BSMC, from 1998 to 2015. Mr. Carter also formed BSMC. From 1987 until 1992, Mr. Carter served as managing general partner of W.T. Carter & Bro., the predecessor to the general partner, and from 1980 till the present of Black Stone Energy Company. Black Stone Energy Company, BSMC’s operational and exploration subsidiary, was established by Mr. Carter in 1980. After holding a number of previous positions beginning in 1975, Mr. Carter worked as a lending officer for the Energy Department of Texas Commerce Bank in Houston, Texas, from 1978 to 1980. The University of Texas at Austin awarded Mr. Carter both a B.B.A. and an MBA. Since 2005, Mr. Carter has served as a director of Carrizo Oil & Gas Inc. He has been a St. Edward’s University Trustee since 2009.

Opinion: At the current rate of quarterly dividends of .$42, this royalty right’s owner is paying out a yield of 10%. According to the CEO, “The efforts to attract capital to our acreage are delivering results. We have a clear line of sight on significant increases in drilling activity from producers on some of our concentrated positions. In the Shelby Trough, where royalty production peaked at over 11,000 Boe per day under BP and XTO’s drilling programs, Aethon is ramping up to annual well counts that should allow us to surpass those levels in the coming years. In addition, we continue to be encouraged by drilling results in the East Texas Austin Chalk and by what that implies for future activity levels there. We have a deep inventory with over 20 years of drilling locations in these areas, and believe we are well-positioned to return to multi-year production growth.”

 

Name: Warren Kelcy L
Position: Chairman
Transaction Date: 2022-09-12 Shares Bought: 2,428,747 Average Price Paid: $12.04 Cost: $29,242,114.00
Company: Energy Transfer LP. (ET)
Energy Transfer is a Texas-based company that began in 1995 as a small intrastate natural gas pipeline operator and is now one of the largest and most diversified investment grade master limited partnerships in the United States—growing from roughly 200 miles of natural gas pipelines in 2002 to more than 86,000 miles of natural gas, natural gas liquids (NGLs), refined products, and crude oil pipelines. Today, there are three publicly traded partnerships in the Energy Transfer Family that own and operate one of the largest and most diversified portfolios of energy assets in the United States, with a strategic footprint in all major domestic production basins.

Kelcy L. Warren is Executive Chairman of the Board of Directors of Energy Transfer LP and has been a leader in the energy industry for nearly 40 years. Mr. Warren co-founded Energy Transfer in 1996, which began as a small intrastate natural gas pipeline operator and is now one of the largest and most diversified publicly traded energy companies in the industry. Today, the Energy Transfer family of partnerships includes Energy Transfer LP, Sunoco LP, and USA Compression Partners LP.

Opinion: We like pipelines transporting natural gas. I believe that we will continue to use natural gas until the planet runs out of it. There is no end in sight. The 7.7% current yield looks attractive in any foreseeable interest rate environment.

 

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Insiders sell the 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 within 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. SECForm4 is one of the smaller ones but I like supporting Frank. He is not arrogant. He’s helpful and has great prices. He also trades on his own data so I like people that eat what they kill.

We publish a subscription newsletter called The Insiders Report.  We offer a free 30-day trial so you have nothing to lose by trying it out. Be sure to carefully read the TERMS OF SERVICE.

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 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 believing they never make mistakes.  Do your own analysis. They can easily be wrong, and in many cases, maybe most cases have no more idea what the future may hold than you or me. In short, you can lose money following them.  We have and we curse aloud, what were they thinking!

We like Fly on the Wall for keeping up with what events might be happening, analysts’ comments, and whatever else could be moving the stock.  Dow Jones news service is an essential tool but many services pick up their feed like they do Bloomberg. For quick financial analysis, it’s hard to beat Old School Value.

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. 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

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