Sage TherapeuticsSage Therapeutics (SAGE) insiders seem to offer hope to long term investors. Sage Therapeutics reported disappointing phase 3 results on their major depressive disorder drug.  Insiders don’t seem deterred at all, buying over $4 million. The largest being Robichaud”s buy of 25,000 shares at $64.16.  Apparently the major depressive treatment options are so bleak that even poor results get approved by the FDA.   Sage is our pick of the week. Unfortunately its already up 10% from where insiders were buying.  Selling the near term $65 is the way we would play it now.  Stifel added it to its Select List over the weekend with a price target of $173.

Chairman Duncan continues to put down good money, this time  on his company, Enterprise Products Partner (EPD), buying over $22 million of this midstream oil and gas infrastructure play yielding over 6%.  These companies get no respect in this market.  Insiders have been very active in many of the names.

Rocket Pharmaceuticals (RCKT) did a 3.82M share Spot Secondary at $22.25 and Chairman of the Board, Roderick Wong added $5 million to his already massive holdings.  Biotech, if you haven’t noticed, is the hottest sector in the market.  I don’t remember a time the sector was so hot. Gridlock in Washington is definitely blowing a stiff wind behind valuations.

Now for the most insane IPO I have ever seen.  We normally don’t report on IPOs because insiders only buy them at the underwriter’s offering price and if you, the general public, can buy it at that price, you really don’t want it. LMP Automotive (LMPX) went public with a very tiny IPO, almost $13 million, and priced at the lower end of the range. Nothing odd here except why would you bother with the expense of going public if you’re only raising $13 million today.  Well, I have an answer for it but you have to read between the lines as I don’t want to be sued for libel.  Chairman of the Board, Tawfik Samer, who owns about 3.6 million shares bought 262,274 more shares in the aftermarket at $6.53 and then another $1.7 million at $13.15. Why would anyone buy stock at over twice the price he was selling it a couple of days earlier?  Now keep in mind his company that was selling stock to the public at $5 just a few days earlier.  LMPX has skyrocketed as high as $42 before closing at $27.86 Friday, up a mere 500% in just 7 trading days.  Try googling Tawfik Samer for more insight into this incredible story.  SEC hello?

Expedia Group (EXPE) insiders seem to rejoice the firing of the CEO.  Officer Kern bought 23,070 shares at $108.33. Selling December 108 puts is a license to print money.  You really want to get put this stock.

Occidental Petroleum  OXY  Two insiders bought $886k worth of stock.  They must have ignored their investment adviser. I can’t think of a company in memory with more insider buying and such poor price performance.  Not even American Airlines has been this bad. Occidental has under performed the S&P 500 by -51.4%YTD. CEO Bloom bought $1.89 million at an average price of $2.05.  This company has been middling around for a long time but suddenly seems to be profitable. This bears watching and doing more research.

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 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.

Prosperous Trading,

Harvey Sax