Insider buying picked up this week across several depressed sectors like insurance,  small regional banks,  gaming, furniture, REITS, building products, restaurants and retailers, automotive and motorcycle and utility stocks. The buy of the week is property and casualty California auto insurer, Mercury General MCY.  Chairman of the Board George Joseph continued accumulating stock with $15 million of stock purchases at an average price of $35.95. MCY is down from it’s high this year of $52.  MCY yields 6.65%. People are driving less and insurance claim losses are down  as a result of that. Offsetting this, reinvestment rates on bond portfolios are projected to be lower as the Fed lowered interest rates to combat the economic crisis resulting from the virus. This looks like a solid buy.

Another insurance company, Aon PLC AON has large insider buying. Chairman Knight bought $13,650,000 at $195.00  Aon is planning a merger will Willis Towers Watson in an all stock deal. This is Knight’s largest buy ever and the highest price he has paid . Knight has not sold a share since 2002 when he sold a modest amount at $15.57.  AON is primarily an insurance agent/broker and combined with Willis Towers Watson will have gigantic reach around the world. This is a good long term buy as well as short term. Large companies are going to have many conversations with their agents and consultants over this pandemic. Free cash flow was very strong in the 1st quarter although negatively impacted by the strong dollar. Unlike many of the other companies, AON primarily makes money from the sale of services and low interest rates on reinvestment income is not the challenge it is for underwriters.

Aramark ARMK CFO Ondrof bought 10,000 shares at $24.99. This one is a head-scratcher.  Aramark provides food service, facilities and uniform services to hospitals, universities, school districts, stadiums and other businesses around the world. During the last earnings report the Company said “Aramark believes it will be a key enabler in the broader recovery, preparing to perform strongly with expectations that there will be increased demand and value attributable to experienced service providers that focus on safety and hygiene. The Company has the ability to quickly scale offerings to meet evolving client needs and will be well-positioned to pursue growth prospects as they emerge.”  With $7.8 billion in debt, Aramark will find pivoting hard to do. There have been several buys here

Upwork Inc UPWK Director Gretsch bought 542,996 shares at $9.95. We had been studying this one for a while.  Upwork has a great products, online contracting for a variety of professional services, connecting a global market of talent with end market buyers. It’s a completely online business which is good for the new pandemic economy. UPWK has been struggling, though, yet to make a profit since its IPO, and I’m less sanguine about the benefits on the pandemic economy as overall business activity is sharply down and this is the primary driver of work for the thousands of independent contractors on the platform. The Company reported a lower loss on its May 6th earnings report and the stock traded slightly higher  The stock seems to have ignited though with the revelation of this large purchase and is now up over 30% in price.

New CEO and Chairman Zeitz bought $3 million of iconic brand Harley- Davidson. HOG makes sense to us. People may want to get out and ride and Born to Ride Harley could be considered an outdoor recreational beneficiary. Prior to being named Chairman, Acting President and CEO in February, Zeitz was a member of the Harley-Davidson Board of Directors since 2007. The CFO also bought 13,500 shares at $19.02.

Fortive Corp FTV Chairman Spoon bought 20,000 shares at $55.22. Fortive Corporation is a diversified industrial technology growth company encompassing businesses that are recognized leaders in attractive markets. They have well-known brands  in leading positions in field solutions, product realization, sensing technologies, health, transportation technologies, and franchise distribution.

There were several regional bank insiders buying shares in their company. The most notable though is Chairman of the Board, Harris Simmons buy of 40,000 shares at $26.43. Utah based Zions Bancorp ZION has been relatively unscathed by the virus but having the best house in a bad neighborhood is not a good way to make money. None the less, we are buying here, its just too enticing with its 5% dividend, 70% of tangible book trading at 50% of its price earlier in the year. Other buys were in Camden National CAC, Four Corners Property Trust FCPT, First Financial Bankshares FFIN, PCB Bancorp. Truist Financial TFC, Triump Bancorp TFC,Valley National Bancorp, VLY, and Wabash National Corporation WNC.

Restaurateur operator Bloomin’ Brands BLMN COO bought 25,000 at $10.05. That’s Outback Steakhouse, one of my favorite low cost steak houses but I’m not going back anytime soon.

REITS have seen some buying, the largest of which is office property Boston Properties BXP Director Duncan’s purchase of 10,000 shares at $74.49.

Other REIT buys include Four Corners Property Trust (restaurant tenants) CEO purchase of 11,300 shares at $17.79 and Essential Properties Realty Trust EPRT, Director bought $447,518 worth of stock at $11.78 yielding 7.8%. EPRT profile property is according to their website Restaurants (Quick Service & Casual Dining & Family Dining), Car Washes, Medical & Dental,Child Care & Early Childhood Education, Convenience Stores, Veterinary Clinics & Pet Services, Automotive Services, Health & Fitness, Movie Theatres, Entertainment Venues, and Building Materials. There has been some consistent buying in this name.

Front Yard Residential RESI (single family home rental) stock collapsed when their deal to sell themselves but they got a nice consolation prize.Front Yard Residential Corporation announced that the Company and Amherst Residential have agreed to terminate the previously announced merger agreement pursuant to which Amherst would have acquired Front Yard, and the parties have entered into a settlement agreement with respect to the termination. In connection with the termination of the merger agreement, Amherst has agreed to pay a $25 million fee to Front Yard, purchase 4.4 million shares of Front Yard common stock in a primary issuance at $12.50 per share for an aggregate purchase price of $55 million and provide a $20 million committed two-year unsecured loan facility to Front Yard. Director Lazar bought 60,000 shares at $6.99. At Friday’s close of $6.15, the yield is over 9%. Six different insiders bought stock here including hedge fund Deer Park Road Management’s $5.4 million purchase at $7.30. There is a good Seeking Alpha article on this complex situation.

Extended Stay America STAY Director Wallman bought 20,000 shares at $10.81 at this long term hotelier type rental  company.

Director Sautel bought 38,000 shares at $11.78 of Preferred Apartment Communities APTS. For now rentals have remained high through April but the economy is on life support from the Government. APTS yields 10.43% at Friday’s closing price of $6.71.

CVS Health CVS Drug store giant VP bought 5000 shares at $63.14. It seems that CVS’s business should be better than normal as drug stores are one of the few retailers allowed to operate in much of the country due to the pandemic.

Owens & Minor Director Sledd bought 112,000 shares at $7.19. OMI is a leading global healthcare solutions company with integrated technologies, products and services aligned to deliver significant and sustained value for healthcare providers, manufacturers and directly to patients across the continuum of care. In a global pandemic with its emphasis on healthcare spending, you would thenk that OMI stock would be doing well but the Coronavirus has crowded out a lot of healthcare spending. We think that is going to change soon.

Oil and Gas insiders have not given up entirely although this week marked a quite one. The only notable buys was Magellan Midstream Partners, MMP Dir Joung bought 13,370 shares $42.11.  MMP is considered to be one of the better capitalized MLPs in the oil and gas midstream space.

In the home building and construction space, we saw NVR Director buy $225,000 of stock but this is a new purchase so we are discounting that as well as new Beacon Roofing Director Young’s purchase of 14,500 shares at $17.18. Two new director purchases at Rent-A-Center also fall into that category although they were sizeable buys, 20,000 shares at $23.01 and 13,725 at $23.24. Cornerstone Building Brands Director Ball bought 60,000 shares at $3.75.

Tricida Inc TCDA biotech CFO Parker continues to buy, this time 35,000 shares at $30.09.  We feel good about the stock here and the winds are behind us with very favorable sector money flows.

Stewart Information Services STC CEO Eppinger continues to buy this large title insurance company with a purchase of 16,100 shares at $28.55. It’s hard to understand the logic here and the market is struggling with it as well. Perhaps single family home sales will prove to be more resilient than thought.

 

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