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Some Insiders are Killing it- Everything is UP- Week Ending February 7, 2020

Wow- did you see our pick of the week, Groupon?  Groupon rocketed over 50% Friday on better than expected quarterly earnings and an enormous short squeeze. GRPN traded 13 times normal volume which makes it prime for a price reversal. I listened to the earnings call and not sure how convincing the turnaround story will be. Didn’t hear on attaboy from the handful of analysts obligatorily covering the fallen unicorn.  It’s still mind number to think they turned down $5.7 Billion from Google. I’m going to make a mental note that when Google offers me $5.7 billion for my company, I’m going to let them have it.

Click on the image in the email as well as  the link to the trades-

The pick of the week goes go to CEO James Clammer who nailed the trade in his beleaguered med tech company, AngioDynamics with 40,000 shares bought at $8.26.  By Friday this pick was up a whopping 14.16%.   We invested in ANGO but we didn’t put enough firepower behind it. In part because med tech has been hurt by the diversion of resources and elective procedures to the all consuming corornavius.  Secondly it just happened so fast as many of these buys do.  ANGO has been drifting down and when Clammer bought stock, he absolutely nailed the bottom.  Before we even noticed much, ANGO popped 14% for the week.

CE Redmond put out $390K to buy 50,000 shares of student lender Navient.  Navient has been crushed and understandably so.  They are playing so many angles in the student lending game, its hard to figure out how much real exposure they have to the student loan forbearance, the pandemic, or the credit crisis.  Companies like this no matter how solid they might be create confusing stories and investors penalize confusing stories, hence the 7.32%  yield. I’d like to buy more but when NAVI says they are only responsible for 20% of the student loans that default- well that could be a gigantic number. Hey NAVI get a simpler story maybe investors will warm up?

You could say eHealth got sick. High flyer EHTH and momentum darling sunk 25% on quarterly earnings guidance.  Muddy Waters, noted short seller said churn was a horrendous 55%.  Several brokerage firms lowered their targets to a mere 50-100% from where it sold off to.  I guess that was enought to ignite the animal spirits in CEO Scott Flancers as he bought 50,000 shares at $71.54. I’d load the boat with this one as momentum darlings don’t fade fast. It’s sure to drift higher over the coming weeks.   This was another one you really had to be on top of as Flancers bottom ticked it as well.

Charles David made a massive investment in Axis Capital Holdings.  He bought $22,287,040 at $41.12.  This proved prescient in the short run. The stock closed the week up 7.22%.  AXS is a global reinsurance and specialty insurer. Before your eyes glaze over, remember the stock is down from $65 when the S&P 500 is making new highs.

When it comes to massive bets, though, all bow to Warren Buffet. He’s been on a tear buying Bank of America. By the end of the week his latest purchase of $337 million was up 5.24%.  Buffett has bought over $2 billion in stock during the last 10 days including $5 billion of his own company’s stock. It seems that the pandemic fog is lifting from Mr. Buffet’s eyes.  We are buying with him but I’m sure we’re not getting in his way.

Sao Elias bought $709,345 worth of Compass Diversified Holdings. We’ve done well in the past trading this diversified mezzanine lender yielding 8.33%. You have to buy this one right as it hasn’t done anything for the left to right side of the page. It’s a trade and maybe you pick up a dividend along the way.  We would not be a long term holder.

Although not a big buy, Director Macleod’s purchase of 10,000 shares of Knowles intrigues us. KN has historically been one of the vendors that supplies the microphone to Apple’s iPhone. If they’re good enough to be in Apple’s flagship product, it speaks volumes. Everyone knows that the new iPhone may be the biggest launch in Apple’s history. In addition to iPhone Knowles is the technology in many hearing aids, a growth market with the aging of the baby boomers.  It’s safe bet to say  we are buying KN at $15.78.

We are intrigued with officer Bruehan’s buys of 10,000 shares at $155.94.  This is a large buy, $1.559 Million near an all time high.  IQVIA, formerly Quintiles and IMS Health, Inc., is an American multinational company serving the combined industries of health information technology and clinical research.  It now bills itself as a healthcare data science company.  After the coronavirus, health care data science looks like a super growth industry. It’s just not one that is great to have $11.5 billion in legacy debt. You can see how this weighs on price with Change Healthcare and I suspect IQVIA will be held back to by this cumbersome debt burden.

Two small buys in a small semiconductor company, MagnaChip Semiconductor MMX. We are not buying but its on the radar now.

Nice to see Director Ted Dosch continue to buy utility UGI.  We made some money there but are lurking in greener pastures now.

If I had to find a job in the financial services industry, I’d sure take a closer look at what B.Riley Financial is doing.  Trading at a 52 wk high when all their competitors are mired in trading ranges.  All the while management continues to buy, buy, buy. This week Bryan Riley bought another bunch of his company’s stock, paying $27.15 for 25,000 more shares.  I like these brash guys at RILY. I wish I owned more.

Someone forgot to give Dir Mark Papa the memo.  Oil is dead so why is buying Schlumberger?  Papa purchased 15,000 at $19.46. Oh how low have the mighty fallen.  I will get very bullish on Gulf of Mexico oil when Biden and the Green Dream win the election. Banning fracking could cause crude to sky rocket.  W&T Offshore is one name we will be playing.

What’s wrong with Elanco Animal Health? Insiders continue to buy and stock goes nowhere.  The latest buy by Todd Young is 7000 shares at $23.91.

FFIV F5 Networks took a slight dip on earnings and VP Thomas Fountain bought 8,060 shares of this at $136.52.  I was surprised by this buy as the stock drop wasn’t sharp and the rebound hasn’t been either, up only 2.97% from his purchase.

We appear to in one of those golden moments where all insider buys are working. Every single buy we recorded made money this week. Enjoy it, make hay while the sun shines. It never lasts.

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Insiders sell stock for many reasons, but they generally buy for just one – to make money. You’ve always heard the best information is inside information.  Everyone who has any experience at all in the stock market pays close attention to what insiders are doing.  After all, who knows a business better than the people running it?  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 SECForm4  as they provide a way to manage and make sense of the vast realms of data. I’ve tried a lot of vendors and SECForm4 is one of the most customer friendly and responsive I’ve used. This is as close to “insider information” that an ordinary investor is likely to see- and it’s entirely legal. 

BEWARE– Following insiders can be hazardous to your financial health unless you know what you are doing.  Unlike the raw, unfiltered data, The Insiders Fund blog informs you of the purchases that count, the ones that are just window dressing into deceiving the public that all is hunky dory, and those that are just flat out other people’s money and should be just discarded like bad fish. 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 and options. 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. Also planned sales that just pop up out of nowhere are basically sales and are seeking cover under the Sarbanes Oxley corporate welfare clause. 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. Don’t let anyone fool you into believe they never make mistakes.  No one tracks and understands insider behavior better than us. We’ve been doing it religiously since 2001, when I quit being an insider myself and devoted myself full time to managing my personal investments. 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.  THE INSIDERS FUND invests in companies at or near prices that management has been willing to invest significant amounts of their own money in.  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

The Insiders Fund was the 4th best long-short equity fund in the world in 2019


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