The broader market went down every day of the week, capping off the worst week of the new year, inspiring pundits to question if the 10-year bull market was coming to an end.  President Trump cheerleaded the market promising a huge rally when the China trade deal was done. Investors were skeptical, sniffing out a buy the rumor, sell the news reaction.

There were few buys last week of any interest. The most notable one was Berkshire Hathaway bought more Delta.

Delta attracts more Buffett money

10% shareholders adjusted their holdings but the only purchases of interest by directors and officers of any companies are outlined below.

Buys

DAL Delta Normally we ignore institutional purchases as they really are a different animal than purchases by corporate officers and insiders but when Warren Buffett buys stock, everyone takes notice.  Berkshire Hathaway marginally increased their significant holdings of Delta with a $265 million purchase at an average price of $49.40.  Couple this purchase with this week’s Barron’s feature article, Delta Airlines Stock Can Fly Higher, one can almost be guaranteed a bounce in Delta stock on Monday.  This is one of our largest holdings and we have been adding to our position as it declined recently. We also bought some UAL as insiders have bought this one at significantly higher prices than Friday’s close.

KMI Kinder Morgan  Chairman of the Board continues to peck out KMI buying $11.4 million worth of this pipeline play at 52-week highs.  His buying has propelled the stock to 52-week highs while pipeline peer, Energy Transfer ET trades close to a 52 week low with a far higher dividend payment and excellent coverage ratios. We are scratching our head on this one.
KDP Keurig-Dr. Pepper Director Peter Half continues to show faith in KDP dramatically increasing his holdings by over 700%.  Half purchased $4 million at an average price of $25.44. Keurig Dr. Pepper director Olivier Goudet disclosed in a filing that he had purchased 20,000 shares of company stock at an average price of $25.43 on March 1. Few companies have had as much insider buying as this coffee and soda company. Candidly though, we struggle to see the allure as once synergies from cost savings of the merger are realized, revenue is only projected to grow at a 2-3% rate. 
CTL Century Link Three insiders bought $1.7 million worth of stock, most notably the CEO’s purchase of $1 million worth at $11.94 per share. CenturyLink, Inc. provides various communications services to residential, business, wholesale, and governmental customers primarily in the United States.  On March 4th, the Company announced it would delay its 10k filing because its auditors uncovered material weakness in its internal controls regarding its purchase of L3 Communications.  The Company added that it did not expect this to result in any material restatements of the finances regarding this 10k.  The market likes accounting red flags about as much as a patient likes hearing they have cancer. CTL probed new lows, its descent only stopped by a wave of insider buying.
CTL is a complex business as a result of debt-fueled numerous acquisitions. On October 31, 2016, CenturyLink announced its intent to acquire Level 3 Communications in a deal valued at around $25 billion.  Its the 3rd largest landline telecommunications play and everyone realizes that landlines are becoming obsolete.  CTL also controls a gigantic fiber backbone which will be utilized more and more as wireless services like 5 G require greater backbone hauling of data transmission.  Cash flow remains high and its 18% dividend payout seems secure for now but one has to wonder how long a 70% dividend cash payout ratio can be maintained as more and more residential and business customers drop their copper-based landlines. 
FG FGL Holdings CEO Christopher Blunt bought 800,000 shares at $8.54. FGL Holdings, through its subsidiaries, sells individual life insurance products and annuities in the United States. The company offers deferred annuities, including fixed indexed annuity contracts and fixed rate annuity contracts; immediate annuities; and life insurance products. It also provides life and annuity reinsurance services, such as reinsurance on asset intensive, long duration life, and annuity liabilities.
On December 19th Following a strategic review, FGL Holdings announced a new cost reduction program that is expected to generate approximately $15M of annualized expense savings once completed. A portion of these savings will be reinvested in strategic growth initiatives in 2019, including new capabilities and resources to enter the independent broker dealer and bank channels. With the company’s recent ratings upgrade to A- by A.M. Best, F&G sees significant growth opportunities in both of these channels, as well as, further growth within its core IMO channel.  They also announced the appointment of Blunt as CEO so we would take his purchase of 800,000 shares with circumspection.

STKL Sunopta, Inc.  Ten insiders bought $1.3 million worth of stock, the largest being Officer Miketa buy of $662k at $2.72. SunOpta Inc. proclaims it is a leading global company focused on organic, non-genetically modified (“non-GMO”) and specialty foods. SunOpta specializes in the sourcing, processing and packaging of organic and non-GMO food products, integrated from seed through packaged products; with a focus on strategic vertically integrated business models. It’s hard to see how its stagnant growth and money-losing operations will change anytime soon.

UVE Universal Insurance Hldg dropped 20% on March 1 after reporting earnings.  Two insiders bought $652k worth of stock in this specialty P&C insurer shortly after.  UVE is a specialty catastrophe storm writing company. Global warming trends have weighed heavily on the financial wisdom of this insurer’s business strategy.

CVS CVS Health  Two directors at the drug store giant purchased $431k worth of stock near a 52 week low at $58.27.  Their purchases immediately went into the red as the Company closed out a tumultuous week at $53. Headline news about Amazon entering the drugstore business and the political/legal pressures on the pharmacy benefits business all weigh on the stock.
Argus analyst Chris Graja lowered his price target on CVS Health to $80 after its Q4 results and lower than expected outlook for 2019 earnings, forecasting the market environment for the company to remain “difficult” with a lower than previously modeled buyback activity. The analyst is keeping his Buy rating on CVS Health longer term however, with a positive view on its Aetna acquisition being the “logical continuation of management’s plan to provide innovative ways to help both healthcare payers and individual patients.”
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.

ABT Abbott Laboratories  Eleven insiders took advantage of the 52-week high price of Abbott to unload $3.8 million worth of stock. Abbott Laboratories discovers, develops, manufactures, and sells health care products worldwide.

 

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.