Spike in Buying

The spike in insider buying that supported the brief rally in September has predictably collapsed in part because earnings blackout has begun, but equally important insiders buy their own company’s stock when they perceive it to be cheap.  There was a pickup in buying during the summer as the market stalled and pulled back. Note the yellow highlight on the red graph.

Ulta Beauty’s major shareholder and Channel family advisor, Charles Heibroon bought $58.9 million of the beauty chain company, Ulta Beauty.  Ulta took a dump on August 30th, dropping $100 in price, losing almost a third of its value on a disappointing earnings miss and forecast.  All retailers live under the dark clouds of Amazon’s sprawling empire and investors are skittish.  Heibroon’s large buy restored some confidence and put a temporary floor in the stock.

Scientific Games‘ Chairman Ronald Perelman continues to suck up the float on this gaming and lottery software company. I’ve been watching these buys for some time now and trying to understand what is motivating the billionaire investor.  The company is in three businesses, none of which are growing very much although one of them may have some explosive opportunity, what they call the social gaming business.  The lottery business, the gaming business (basically card shuffling and casino games) are mature businesses. The NJ supreme court which allowed NFL sports betting may open up new opportunities in the social gaming business but there are many competitors and I don’t see a clear path to hegemony.  As more and more states open up to sports betting this is going to no doubt be a huge business.

FedEx recently issued a downbeat earnings report and somber forecast. The stock took a hit and Director Martin stepped up and bought $253 thousand worth of stock. FedEx is ending its relationship with Amazon as it becomes clearer and clearer that Amazon is a competitor in the freight logistics business. The Trump trade war is also impacting the stock.  We don’t see a compelling reason to buy.

Occidental Petroleum insider, Director Klesse modestly adds to his losing position. This is his 11th buy since 2014 when he paid $95 per share for OXY.  We think he’s got it right now as OXY is yielding over 7% and is in on track with its asset divestiture from its purchase of Anadarko.

Director DiGiandomenico bought $204.9 thousand of Provention Bio, a clinical-stage biotech company.  This is his third buy this year and warrants further study. The director is an officer of the firm, MDP, that helped underwrite the Company.  Other large shareholders included Johnson and Johnson. Provention Bio reiterated its regulatory strategy on September 24 regarding PRV-031 for the prevention or delay of clinical type 1 diabetes in individuals at risk of developing the disease. Based on written communications from the U.S. FDA and FDA’s designation of PRV-031 as a breakthrough therapy, the company believes that existing clinical and non-clinical data for PRV-031 will be sufficient to support a Biologics License Application submission for PRV-031 in the fourth quarter of 2020 for the at-risk indication. The company expects to meet with the FDA in the fourth quarter of 2019 to discuss this expedited development plan.

FPAY FlexShopper Inc  $0.022 Dvorkin Howard Chmn 132,045  $1.53 132,045  $201,567 1,558,439 9.3%
OXY Occidental Petroleum Corp  $38.638 Klesse William R Dir 5,000  $45.54 5,000  $227,700 101,203 5.2%
PRVB Provention Bio Inc  $0.339 DiGiandomenico Anthony Dir 30,000  $6.83 30,000  $204,900 178,712 20.2%
ULTA Ulta Beauty Inc  $15.147 Heilbronn Charles Dir 243,849  $241.52 243,849  $58,894,240 2,087,047 13.2%
FDX FedEx Corporation  $36.972 Martin R Brad Dir 1,750  $145.00 1,750  $253,750 59,146 3.0%
SGMS Scientific Games Corp  $1.833 Perelman Ronald O Chmn 50,000  $20.42 50,000  $1,021,000 36,802,842 0.1%

 

Insiders sell stock for many reasons, but they generally buy for just one – to make money. THE INSIDERS FUND invests in companies at or near prices that management has been willing to invest significant amounts of their own money in.  After all, who knows a business better than the people running it?  You’ve always heard the best information is inside information.  This is as close to “insider information” that an ordinary investor is likely to see- and it’s entirely legal.  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 the Washington Service as they provide a way to manage and make sense of the vast realms of data.

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. 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.  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, unintuitive as it may seem, insiders can also be wrong about their Company’s prospects, 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.  To learn more about our strategy, visit our website.

If you would like to hear more about how you can get involved with the Insiders Fund, please schedule some time on my calendar


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