For trade details click on this link to the trades

Selecta Biosciences up 12.90%

HomeStreet up 4.30%

International Business Machines up 3.64%

Raytheon Technologies ups 3.64%

SMART Global Holdings up 1.54%

Cytodyn up 0.16%

Employers Holdings up 0.03%

Kimberly Clark down 0.06%

Ares Capital down 0.65%

Pulte Group down -1.76%

Crown Castle down -3.72%

Universal Stainless & Alloy down 3.72%

Agree Realty down 5.51%

 

Raging pandemic, fears of shutdowns, and the specter of a Presidential election fought in the courts or worse yet the streets-Guns and ammunitions are flying off the shelf.  If you’re for Trump, the market is going to crash if Biden gets elected. If you’re for Biden, not only will the market collapse if Trump wins, but the very democracy will come tumbling down.  People are buying houses, buying cars, stocking up on fresh goods and cans- BUT they are not buying stocks.  The S&P 500 fell over 6% last week YET insiders continue to buy in spite of the headlines.

We wrote about Selecta last week so we won’t go into it other than to say we traded out of most of the position for a handsome short swing profit.

Two cluster insider buys drew a lot of attention to us and we placed large bets on both IBM and Raytheon Technologies.

Dir Waddell bought 1000 IBM at $107.50.  Dir Farr bought 1500 shares at $107.74. Director Taurel bought 5000 shares at $110.75 and Director McNabb tipped the scales with 9,250 shares at $108.01 for just under $1 million dollars.  Now, we’re not a great fan of IBM but when you see cluster buys like this, and one with a million dollars behind it.  We jumped on this trade and are up nicely in a horrible tape.  So  the question remains do we take the money and run or hold onto IBM.

IBM has been a wealth destroying trade.  After reaching $215 in 2012 the stock has sold off to 2008-2009 levels to Friday’s close of $111.76.  IBM pays an outsized 5.84% dividend yield but sports a 75% debt to capital ratio.  IBM has $54 billion in long term debt and is paying out 50.9% of earnings in supporting its 20 year consecutive track record of paying dividends.  If there is a better indictment of stock buybacks than IBM, I’m not aware of one.  IBM has spent more than $201 billion on its shares since 1995.  It’s pretty clear to me that shareholders would have been a lot better off if IBM had spent that money buying technology, competitors, and talent and not their stock.  We love the RED HAT buy but the price of $34 billion for a company that provides support for an open source language is steep and probably too little too late.

The recent flurry of buying may be just a consequence of the steady descent in stock price since its Q3 earnings release.  Our sell ticket is in at $115. We’d like to believe in redemption but IBM has too much debt and not enough oomph to get us more than traders.

Raytheon Technologies may be something special.  No less than five insiders bought RTX last week.  The biggest buy was CEO Haye’s purchase of 55,000 shares at $54.82 spending $3,014,998.  That’s animal spirits.  Combine that with the Chairman’s purchase of 19,059 at $52.47, Director’s buy of 9,532 at $52.41, and a purchase of 1000 at $52.57 by a VP, we’ve got a red flag waving in front of the bulls.

Raytheon Technologies Corporation is an American multinational conglomerate headquartered in Waltham, Massachusetts. The company is one of the largest aerospace and defense manufacturers in the world by revenue and market capitalization.  United Technologies Corporation was an American multinational conglomerate headquartered in Farmington, Connecticut. It merged with the Raytheon Company in April 2020 to form Raytheon Technologies.

During an interview on CNBC’s Mad Money, Greg Hayes said until people feel safe on planes, commercial air travel will not return to 2019 levels until 2023.  Raytheon is cutting costs to improve margins for the eventual turnaround. “The best thing for us to do is to continue to invest cash in the business,” he said. Share buybacks are priority number two, according to Hayes. Big M&A at this point is “not a prudent thing to do,” he said.  Defense is a bipartisan issue and RTX’s $152.3 billion backlog of which $70.2 billion was from defense.

The combined company is heavy on aerospace and we know the slump that industry is in. Eventually the pandemic will be over and the sector will have some kind of rally. In the interim the company is too vital to national defense to be allowed to fail.    Investor sentiment was already bad from the pandemic so when the company announced on October 28th, that they received a criminal subpoena from the DOJ seeking information and documents in connection with an investigation relating to financial accounting, internal controls over financial reporting, and cost reporting regarding Raytheon company’s Missiles & Defense business since 2009, that was a blow to0 far and the shares dipped toward March lows.  We like the play here as there is so much bad news already reflected in the price, it won’t take much to make money from here.  The Company pays a 3.5% dividend.  Accordingly insiders stepped up to the plate.  I would expect even more buying if the stock stays this depressed.  The CEO sold stock last year at more than twice the price, $147.79.

Director Marin J Landis likes to buy Crown Castle International.  CCI is a real estate investment trust and provider of shared communications infrastructure in the United States. Its network includes over 40,000 cell towers and nearly 80,000 route miles of fiber supporting small cells and fiber solutions. With the increased demand for 5G infrastructure, CCI looks like a safe bet  yielding 3.41%.  We are buyers of this name and urge our followers to take head. Mr. Landis’s purchase of 8,050 shares at $161.19 is his 6th $million dollar plus purchase since 2017.  He hasn’t lost money yet and hasn’t sold a share.  It’s hard to see how you lose money here with interest rates this low and demand for wireless hitting a new buildout cycle.

CEO deVeer bought 75,000 shares of Ares Capital Corp at $13.98. He was joined by its VP who bought 5000 shares at $13.78 and a director who purchased 10,000 shares at $13.92.

Joey Agree has confidence in his company, Agree Realty Corp. He bought 15,293 shares at $65.69. Frankly I don’t think the yield of 3.87% is compensation enough for the risk of commercial real estate.    Agree Realty Corporation is a publicly traded real estate investment trust primarily engaged in the acquisition and development of properties net leased to industry-leading retail tenants. As of September 30, 2020, the Company owned and operated a portfolio of 1,027 properties, located in 45 states and containing approximately 21.0 million square feet of gross leasable area. The common stock of Agree Realty Corporation is listed on the New York Stock Exchange under the symbol “ADC”.

When it comes to dollar cost averaging, investors should take note of what EVP Zimmer is doing with Universal Stainless and Alloy Products, USAP.  This is fourth buy this year and the nearly 4x times the size of his previous one as the stock keeps going lower. Universal Stainless, headquartered in Bridgeville, PA, produces semi-finished and finished specialty steel long products and plate including nickel alloy, stainless steel, tool steel and aircraft quality low alloy steels.

ARCC is a middle market lender. It’s current yield is 11.57%  As of September 30, 2020, Ares Capital Corporation’s (“Ares Capital” or “ARCC”) portfolio had a fair value of approximately $14.4 billion, and consisted of 347 portfolio companies backed by 166 different private equity sponsors. Ares Capital has a diversified portfolio in terms of issuer concentration, asset class, industry sector and geographic representation.

Another mezzanine lender, Golub Capital has had steady insider buying. We blogged previously about GBDC.  The buying continued this week with another $500,000 worth of insider buying at $12.93. GBDC yields 9.13%.  Investors looking for yield can find it in both ARCC and GBDC.

Director Patterson has been a steady buyer of HomeStreet. His latest purchase of 20,000 shares at $29.79 is his 4th this year. HMST  provides various financial services primarily in Washington, Oregon, California, and Hawaii. The company was founded as Continental Mortgage and Loan Company in 1921 by W. Walter Williams. It changed its name to Continental Savings Bank in 1986.

 


 

Follow us on Twitter for real time insider buying alerts at https://twitter.com/theinsidersfund


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


 

%d bloggers like this: