Insider Buying Week 8-04-23 Hydrocarbons Make the Modern World Modern

Oil and gas have been the best-performing sector in the market for the last couple of weeks. There is much talk about an oil surplus, and economic weakness in China, the world’s largest petroleum consumer.  Analysts are often too deep in the woods to see the trees.  It is true that Opec et al. Russia fiddle with the supply of oil in an attempt to manipulate the price, but it is equally true that every industrialized economy attempts to influence the price, supply, and consumption of the world’s most important commodity.

For example, The U.S. sold off its Strategic Petroleum Reserves to bring the price of crude down without restocking it.  The Inflation Reduction Act incentivizes all sources of energy but hydrocarbons with massive tax breaks, fiscal grants, and loans.  How is this any different than OPEC’s price manipulation? The bottom line is that the price is what it Is. In the short term, speculators may have a significant impact, but when the market doesn’t support a price that allows producers to get a return in excess of their cost of capital, the supply goes down; the commodity price goes up, and with it the share price of well-run E&P companies.

Hydrocarbons make the modern world modern. We are just one oil tanker ablaze from a super spike in the price of oil.  Jeffrey Uben’s mega buy at Exxon and Buffett’s continued purchase of Occidental Petroleum gives me added confidence that I am on to something.

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Name: Jeffrey W Ubben
Position: Director
Transaction Date: 2023-07-31 Shares Bought: 458,000 Average Price Paid: $106.93 Cost: $48,972,562
Company: Exxon Mobil Corp (XOM)

Exxon Mobil Corporation was founded in 1882 in the state of New Jersey. ExxonMobil divisions and linked firms operate or market products in the United States and most other nations worldwide. The Company’s primary business is the exploration and production of crude oil and natural gas; the manufacturing, trade, transportation, and sale of crude oil, natural gas, petroleum products, petrochemicals, and a wide range of specialty products; and the pursuit of lower-emission business opportunities such as carbon capture and storage, hydrogen, and lower-emission fuels. Exxon Mobil Corporation is divided into numerous departments and includes hundreds of affiliates, many of which have names like ExxonMobil, Exxon, Esso, Mobil, or XTO. ExxonMobil has a long history of investing in exclusive technology development. They offer diverse research programs tailored to the needs identified in each of their business areas. At the end of 2022, ExxonMobil had over 8000 active patents worldwide.

Mr. Ubben co-founded Inclusive Capital Partners and has been Portfolio Manager and Managing Partner since 2020. Mr. Ubben also co-founded and served as Chief Executive Officer of ValueAct Capital Partners, L.P., from 2000 to 2020 and Chief Investment Officer from 2000 to 2017. From 1995 to 2000, he was a Managing Partner of Blum Capital Partners, L.P. From 1987 until 1995. Mr. Ubben has served on over 20 public company boards and brings a long experience of successfully challenging and working alongside boards and management teams to increase shareholder value. His expertise in return-driven, environmental, and socially active investing, as well as his unique knowledge and experience investing in the energy transition, assists the Board in making better strategic and investing decisions around low-carbon solutions, such as carbon capture and hydrogen technologies.

Opinion: Exxon is making all the right moves.  The purchase of Denbury, combined with their own efforts, made them overnight the world leader in carbon sequestration. The Company acquired 120,000 gross acres in the Smackover formation of southern Arkansas for more than $100 million from exploration company Galvanic Energy. The Arkansas prospect can contain 4 million tons of lithium carbonate equivalent, which is sufficient to power 50 million electric vehicles EVs.

In late July, Ukraine issued its own warning, saying it would treat ships headed to Russian ports as potential military targets. This was an apparent attempt to turn the tables on Russia by imposing an “insurance blockade,” a freezing of commercial maritime activity that would happen if insurers refused to cover civilian ships heading to and from Russian ports on the Black Sea. We are one oil tanker being blown up away from a super spike in oil.  

 

Name: John Jr Rakolta
Position: Director
Transaction Date: 2023-08-02 Shares Bought: 30,000 Average Price Paid: $63.02 Cost: $1,890,600
Company: Agree Realty Corp (ADC)

Name: Richard Agree
Position: Executive Chairman Of Board
Transaction Date: 2023-08-02 Shares Bought: 11,751 Average Price Paid: $62.95 Cost: $739,725
Company: Agree Realty Corp (ADC)

Name: Joey Agree
Position: President & CEO
Transaction Date: 2023-08-02 Shares Bought: 10,000 Average Price Paid: $62.79 Cost: $627,900
Company: Agree Realty Corp (ADC)

Agree Realty Corp is a fully integrated REIT that owns, acquires, develops, and manages retail assets net leased to industry-leading tenants. Richard Agree, the current Executive Chairman, started the Company in 1971, and its common stock was listed on the New York Stock Exchange (“NYSE”) in 1994. The Company’s assets are held by, and all of its operations are carried out through, the Operating Partnership, which is the sole general partner with a 99.6% common interest as of December 31, 2022. The Company, as the single general partner, has sole responsibility and discretion in managing and controlling the Operating Partnership under the Operating Partnership’s limited partnership agreement.

Ambassador Rakolta formerly served on the Board from August 2011 until he was appointed US Ambassador to the UAE in September 2019. Before his confirmation, Mr. Rakolta was the chairman and CEO of Walbridge, a privately held construction company. Mr. Rakolta is a member of the Metropolitan Affairs Corporation and the Coalition for the Future of Detroit School Children. He is a director and member of the Detroit Regional Chamber’s Executive Committee and a member of the boards of directors of New Detroit, Inc., the College for Creative Studies, and Business Leaders for Michigan. In 1998, Mr. Rakolta was designated Honorary Consul General of Romania to the United States. In 1970 he earned a Bachelor of Science in Civil Engineering from Marquette University.

Richard Agree is the Company’s current Executive Chairman. From 1993 to 2012, he was the Company’s Chief Executive Officer and Chairman of the Board of Directors. Prior to the founding of Agree Realty, he was the CEO and President of Agree Development Company, as well as the Managing Partner of the general partnership that owned the Company’s multi-state portfolio. Mr. Agree formed the forerunner to the Company in 1971. Mr Agree graduated from the Detroit College of Law and is a member of the Michigan State Bar, the International Council of Shopping Centres, and the National Association of Real Estate Investment Trusts.

Joey Agree was designated President and Chief Operating Officer in 2009, then Chief Executive Officer in 2013. Mr. Agree was selected EY’s 2018 Michigan and Northwest Ohio Entrepreneur of the Year. He was also recognized a “30 in Their Thirties” by DBusiness magazine, a “40 Under 40” by Real Estate Forum magazine, and a “Forty Under 40” by Crain’s Detroit Business. Joey Agree earned a BA in Political Science from the University of Michigan and a Juris Doctorate from Wayne State University Law School, where he was named a Dean’s Scholar. He is a member of the Michigan State Bar, Young Presidents’ Organisation (YPO), Urban Land Institute (ULI), International Council of Shopping Centres (ICSC), and National Association of Real Estate Investment Trusts (NAREIT). He has spoken on a variety of commercial real estate panels and interviews around the country.

Opinion: A school of thought says an investment is only as valuable as the discounted value of the future cash flow it can spin off, the owner’s cash flow.  The real estate industry REITs exemplify this valuation metric. ADC has a dividend yield of 4.5% and a history of raising its dividend at a 5.9% compound annualized growth rate.  Combined with the anticipated Fed relaxing its grip on the forward part of the curve, REITS, Utilities, and other interest rate-sensitive stocks should pop.

 

Name: Robert Robotti
Position: Director
Transaction Date: 2023-07-31 Shares Bought: 117,698 Average Price Paid: $62.28 Cost: $7,330,231
Company: Tidewater Inc. (TDW)

Tidewater Inc., a Delaware corporation and listed company on the New York Stock Exchange operates a diverse fleet of marine service vessels to provide offshore marine support and transportation services to the global offshore energy industry. The company was incorporated in 1956 and carries out business through wholly-owned subsidiaries in the United States and abroad, as well as through joint ventures where Tidewater owns either a majority or non-controlling stake. The ships and related vessel services generally serve all stages of offshore oil and gas exploration, field development, and production, as well as the construction and maintenance of wind farms.

Robert Edward Robotti is the founder of Robotti & Co. Advisors LLC, Robotti & Co., Inc., and Robotti Securities LLC, as well as the Chairman and Chief Executive Officer of Pulse Seismic, Inc., the president of Robotti Securities LLC, and the Chief Investment Officer of Robotti & Co. Advisors LLC. He is also a board member of AMREP Corp., Tidewater, Inc., PrairieSky Royalty Ltd., and the Catholic Medical Mission Board, Inc., as well as a General Partner of Ravenswood Investments III LP, a member of the New York Society of Security Analysts, Inc., General Partner of Ravenswood Investment Co. LP, Managing Director of Ravenswood Management Co. LLC, and Managing managing member of Ravenswood Investment Co. LLC.

Opinion: Another insider validating the oil trade.  Insiders usually are bottom fishers. When they buy at the top, it says one thing. Business is good and it’s going to get better.

Name: Adena T Friedman

Position: Chair and CEO
Transaction Date: 2023-07-31 Shares Bought: 10,000 Average Price Paid: $51.00 Cost: $510,000
Company: Nasdaq Inc.

Nasdaq is a multinational technology firm that serves the financial markets and other sectors. The company’s broad offers of data, analytics, software, and services allow customers to confidently optimize and execute their business strategy. Market Platforms, Capital Access Platforms, and Anti-Financial Crime are the three business sectors through which we manage, operate, and supply goods and services. Nasdaq was established as a fully owned subsidiary of FINRA in 1971. 2000 FINRA reorganized and increased its ownership of Nasdaq by selling shares to FINRA members, investment firms, and Nasdaq-listed issuers. FINRA sold its entire stake in Nasdaq in 2006 as part of the reorganization, and The Nasdaq Stock Market became an independent registered national securities exchange in 2007.

Adena Friedman was appointed President and Chief Executive Officer of Nasdaq on January 1, 2017, and serves as Chair of the Board of Directors. She provides more than 20 years of industry experience and knowledge, and she is recognized for substantially defining Nasdaq’s evolution into a major global exchange and technology solutions organization with operations on six continents. She returned to Nasdaq in 2014 after serving as Chief Financial Officer and Managing Director of The Carlyle Group from March 2011 to June 2014 and playing a major role in the company’s IPO in May 2012. She has a Bachelor of Arts in political science from Williams College in Massachusetts and a Master of Business Administration from Vanderbilt University’s Owen Graduate School of Management.

Opinion: I’d like to buy this name as exchanges are monopolies, and whenever you can buy a monopoly, that’s a good thing. Wall Street gave Friedman a Bronx cheer when Nasdaq announced they were buying Thoma Bravo P.E-owned software firm Adenza for $10.5 billion.  The deal consists of $5.75 bln in cash and 85.6 mln Nasdaq stock.

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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 with any stock market experience 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 of 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.

The bar is different from selling because the natural state of management is to be a seller. This is because most companies provide significant amounts of management compensation packages as stock and options. Therefore, we analyze unusual patterns with selling, 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, are horrendously poor. Also, planned sales that pop up out of nowhere are basically sales and are seeking cover under this corporate welfare loophole. I also generally ignore 10 percent shareholders as they tend to be OPM (other people’s money) and perhaps not the smart money on which we are trying to read the tea leaves. I say generally because some 10% shareholders are great investors. Think Warren  Buffett and others

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.

A big callout to my assistant Ambreen who sets up this conversation by listing the notable buys that I’ve identified.  She probes the 10k for a reasonable description of the business. I’ve found that to be the most accurate and succinct place to find out what a business actually does.

This blog is solely for educational purposes and the author’s own amusement.  Think of the blog as part of my personal investment journal that I am willing to share with the DIY investor.  There are also many parts that I am not willing to share if I think it could influence trading action or be detrimental to the Fund’s partners. We could be long, short, or have no position at all in any of the stocks mentioned and express no written or implied obligation to disclose any of that.

The Insiders Fund is for qualified investors and by Prospectus only. Nothing herein should be construed otherwise.  THE INSIDERS FUND prefers to invest in companies at or near prices that management has been willing to invest significant amounts of their own money in, but we have no requirement to do so. We also invest in many companies in anticipation of future insider buying or with the expectation that there is none at all.

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Prosperous Trading,