There were several interesting buys last week. It’s going to be quiet for the next few weeks as the 2nd quarter earnings blackout period is well underway. That’s another reason beaten-down value stocks are particularly vulnerable, as they can get no support from their corporate officers, directors, and 10% shareholders.  Insiders are blacked out from buying to prevent any appearance of insider information prior to earnings release.

Buys

WOW WideOpenWest Inc.  Chairman of the Board Marcus increased his holdings marginally by 2.1% with his purchase of 264,801 shares at $8.98. WideOpenWest, Inc. operates as a cable operator in the United States. It provides high-speed data, cable television, voice over IP-based telephony, and business-class services to residential and business services customers. The company offers its services through hybrid fiber coaxial cable network. It offers its services in approximately 300 communities in the states of Alabama, Florida, Georgia, Illinois, Indiana, Maryland, Michigan, Ohio, South Carolina, and Tennessee.

 

WOW reported on March 7 that it expects HSD RGUs to increase by a range of 30,000 to 40,000. In addition, the Company expects Total Revenue to be between $1.155 billion and $1.165 billion, Transaction Adjusted EBITDA to be between $430.0 million and $440.0 million and Transaction Adjusted Capital Expenditures to be between $245.0 million and $255.0 million. Free Cash Flow is expected to be positive for the full year 2019.  

 

We don’t see anything wow about WOW and are sitting this out.

 

SEM Select Medical Holdings Corp  Vice Chairman and Co-Founder, Ortenzio Roco believes in his beaten down company, upping the ante by a $4.3 million purchase at an average price of $14.18. While only increasing his holdings by 3.0%, it’s still a sizeable purchase. Select Medical Corporation, operates critical illness recovery hospitals, rehabilitation hospitals, outpatient rehabilitation clinics, and occupational health centers in the United States. They are the largest operator of outpatient rehabilitation clinics in the United States based on the number of facilities, with 1,662 facilities throughout 37 states and the District of Columbia as of December 31, 2018

 

This appears to be Roco’s first purchase since 2009.  After selling a total of $12.7 million at higher prices, he appears to be willing to buy back a third of it at substantially lower prices.  We are we willing to take a flyer on this name as demographics are a tailwind but bear in mind that they are heavily dependent on Medicare reimbursement. By DCF analysis, the Company appears undervalued.

HIIQ Health Insurance Innovations  Two insiders bought $3 million worth of stock, most noticeably the $2.7 million purchase by director Fichtorn at an average price of $29.28. Health Insurance Innovations, Inc. operates as a cloud-based technology platform and distributor of individual and family health insurance plans, and supplemental products in the United States. It offers short-term medical plans that provide 3 months to 12 months of health insurance coverage with various deductible and co-pay levels.

 

HIIQ is a battleground stock, with short sellers, Aurelius claiming the company is charging consumers millions of dollars for virtually worthless insurance products and is under siege by the FTC.  First Analysis analyst Frank Sparacino raised his EPS estimates for Health Insurance Innovations after the company disclosed that it has repurchased $45.3M of stock during Q1, noting that he had been modeling $30M of buybacks in Q1 and for 2019 in total. The analyst also noted that North Carolina’s Senate recently passed a bill to enable the growth of association health plans, noting that AHPs could represent a $16B total addressable market and a 70%+ increase to Health Insurance Innovations’ existing total addressable market. Sparacino maintains a Strong Buy rating and $67 price target on Health Insurance Innovations shares according to theflyonthewall.com.

Health Insurance Innovations confirmed on March 22, that it expects annual revenue for 2019 to grow 22% to 25% year-over-year to $430M-$440M, adjusted EBITDA to grow 21% to 30% year-over-year to $72M-$77.0M and adjusted net income per share to grow 23% to 29% to $3.20-$3.35. The consensus estimate for revenue is $438.39M and for earnings per share is $3.30. The company said it has repurchased $45.3M of HIIQ shares in the open market in 2019 and believes its shares “continue to represent a compelling value at current levels given the size of the market opportunities we are pursuing and our track record of delivering strong growth in revenues and earnings.

 

Also in the recently released 10k, the Company stated”On August 3, 2018, the Departments of Health and Human Services, Treasury, and Labor (“Departments”) published a rule that changed the way that STM is regulated. The new rule, that went into effect October 2, 2018, extended the maximum duration of these plans from three months to less than 12 months, allowing for renewal or extensions for up to 36 months, subject to each state’s insurance laws. The new rule includes updated notice requirements. The Departments noted in the new rule that issuers and brokers of STM will benefit from its changes and we believe that the new rule makes STM a more practical and flexible form of coverage than it had been previously.”

We like controversial stocks when they have strong earnings, reasonable valuations, and insider buying.  HIIQ has all of these.  The risks are obvious. Taken from the recent 10k, they are outlined below.

  1. Our business practices and the business practices of our third-party licensed distributors and carriers are currently being reviewed by various state insurance regulators and the results of such reviews may adversely affect our business and results of operations.
  2. The market for health insurance in the United States is rapidly evolving, which makes it difficult to forecast demand for our products.
  3. Changes and developments in the health insurance system in the United States, in particular Healthcare Reform, could harm our business.

Health Insurance Innovations (HIIQ) was ranked number one in Fortune’s “100 Fastest-Growing Companies” list for 2018.According to their methodology, Fortune ranks qualifying companies by revenue growth rate, EPS growth rate, and three-year annualized total return as of June 29, 2018. The sum of these three factors then determines where a company will rank among the 100 companies that have qualified for that year.

In a review of Health Insurance InnovationsFortune combined the company’s revenue growth rate of 46%, EPS growth rate of 256% and annualized total return of 87% over the past three years to place HIIQ in the top spot for 2018. According to these criteria, Health Insurance Innovations outranks some of the world’s most recognizable companies including Facebook, Amazon, Netflix and more.

According to The Washington Service, On Oct. 1, shares of Health Insurance Innovations Inc. (HIIQ) reached an all-time high of $63.13. Shares have since reversed course however. On Dec. 17, three directors purchased a total of 37,025 shares of the web-based health insurance provider at an average price over 51% below the October high. As shown on the graph below, the insiders’ combined $1.1 million buy is the largest monthly purchasing total in the company’s history.

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The following directors purchased shares of HIIQ on Dec. 17.

Insider Shares Bought Value Bought % Holdings Change
Anthony Barkett 15,525 $484K 27.9%
Paul G. Gabos 15,000 $460K 30.1%
Robert S. Murley 6,500 $201K N/A*

Each of the insiders earns the highest Insider Rating for timing their prior purchases well before increases in price at HIIQ, adding interest to their recent acquisitions on weakness. Specifically, Murley earns the highest Insider Rating for his average annual return of 63.7% on his first four buys. Given the insiders’ purchasing acumen, their decisions to buy shares of HIIQ on weakness could signal an opportunity for investors to acquire shares at a discount.

RCMT RCMT Technologies Chairman Vizi purchased $2.5 million worth of stock at $3.92. RCM Technologies, Inc. provides business and technology solutions to the commercial and government sectors in the United States, Canada, Puerto Rico, and Serbia. The company operates through three segments: Engineering, Specialty Health Care, and Information Technology.

The company has been an uneven grower and we see no reason to step in.

CUTR Cutera Inc. Director Plants purchased $1.7 million at an average price of $16.96. This buy was preceded by another director’s purchase of  27,100 shares at $16.74.  Cutera is a medical device company, designs, develops, manufactures, markets, and services laser and other energy based aesthetics systems worldwide. The company offers enlighten platform, a laser system that is used for tattoo removal, as well as for the treatment of benign pigmented lesions; excel HR platform, a hair removal solution for various skin types; and truSculpt, a high-powered radio frequency platform designed for deep tissue heating.

 

CUTR stock prices collapsed from $44.90 over last summer to its current price and may have a tradeable bounce. We won’t chase it though.

 

CWH Camping World Holdings, Inc. Two insiders bought $2.4 million worth of stock, most notably Marcus Lemonis, Chairman, purchase of $1.3 million worth of stock at $13.27.  We have written extensively on CWH. The recent collapse in interest rates and the upcoming summer camping season bodes well for a seasonal comeback. We are big buyers under $13.

WSC Willscot Corp Four insiders bought $1.3 million worth of stock at average prices of $11.20-$11.69. WillScot Corporation, through its subsidiaries, provides various specialty rental services in the United States, Canada, and Mexico. It is involved in the leasing and sale of mobile offices, modular buildings, and storage products.

Although depressed in price, we don’t see the compelling opportunity so are on the sidelines.

Sales

Insiders always find ways to sell with  “planned sales” which in reality is just a legal loophole around the SEC restrictions on insider selling during earnings blackout periods.  Some of the more notable ones are described below.

ULTA Ulta Beauty Inc. Nine insiders took advantage of lifetime high prices to unload $143.6 million worth of this beauty chain. As of November 3, 2018, the company operated 1,163 retail stores across 50 states.

We think they have the right idea and would be sellers ourselves.

CRM Salesforce  Nine insider sold $10.2 million worth of stock through a combination of sales and option exercises.  Salesforce is a bloated overpriced cloud-based CRM.  It invented the field so there are a lot of entrenched, hard to switch users but now there are many cheaper, viable competitors. Eventually, the market will perceive the moat is draining and the emperor has no clothes. This is a short but beware the market can remain irrational longer than you can be solvent.

ROST Ross Stores Inc  Five insiders sold a combination of stock and option exercises at prices ranging from $89.91 to $91.51.  ROST is an off-price retail apparel and home fashion stores under the Ross Dress for Less and dd’s DISCOUNTS brands in the United States. It primarily offers apparel, accessories, footwear, and home fashions.  The shares are no bargain, insiders are selling and we would too.

SFIX Stich Fix Inc. Insider selling has picked up at online fashion vendor, Stich Fix.  SFIX is pioneering a Netflix kind of approach to clothes except for the prices are no steal.  They send a basket of clothes to you picked out by your own personal stylist and you buy what you like and return the rest.  It’s hard to see how they carve out a niche when Amazon can easily do the same thing. The moment revenue growth rate tanks, except investors to send the stock back, not just the clothes.

 

In this report, we examined open market purchases from employees and directors.  Insiders sell stock for many reasons, but they generally buy for just one – to make money.  As a standard, 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. 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. We generally ignore 10 percent shareholders as they tend to be OPM (other people’s money) and not the SMART money we are trying to go to school on.  Although this info is available for free from the SEC’s Web site, Edgar, we subscribe to the Washington Service as they provide a way to manage and make sense of the vast realms of data.

To learn more about our strategy, visit our website here. We welcome your comments on our analysis. We may own positions, long or short, in any of these names and are under no obligation to disclose that.