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Now that everyone seemingly is glued to what insiders are doing, it struck me as ironic that they are doing very little.  Here are the notable buys from last week, in descending order of return:

ALLIANCE DATA SYSTEMS CORP up 23.96%

MSC INDUSTRIAL DIRECT CO INC up 9.74%

ENTERPRISE FINANCIAL SERVICES CORP up 5.48%

BROWN & BROWN Inc up 3.20%

SCHWAB CHARLES CORP up 3.07%

TEXAS INSTRUMENTS INC up 1.81%

CROWN CASTLE INTERNATIONAL CORP down -1.15%

 

Alliance Data Systems Corporation

Director Gerspach bought 6000 shares of ADS at $68.46.  Alliance Data Systems Corporation is a publicly-traded provider of loyalty and marketing services, such as private label credit cards, coalition loyalty programs, and direct marketing, derived from the capture and analysis of transaction-rich data.  ADS reported 4th quarter earnings of $3.31 versus $2.41. The Company said that the delinquency ratio was 4.4% versus 5.0$ last month.  ADS moved up sharply during the week as it getting a mention on an insider buying segment on CNBC.  I wouldn’t chase it here but safe to write February 65 puts. At least that’s what The Insiders Fund did.

 

MSC Industrial Direct Co

MSC Industrial Direct Co., Inc, through its subsidiaries, primarily, MSC Industrial Supply Co., is one of the largest industrial equipment distributors in the United States, distributing more than 1.5 million metalworking and other industrial products.

Director 10% Owner Jacobson bought 67,796 shares of MSM at $78.04.  This was a monster buy, $5.29 Million.  Of course, this is all relative.  According to Forbes,  Mitchell Jacobson began working for MSC Direct, an office and industrial equipment distributor founded by his father Sidney, in 1976. In 1995, Jacobson took over as CEO of the Melville, N.Y.-based firm, which now distributes hundreds of products, from staplers to air conditioners. Jacobson held the CEO position through 2005 and, since 2013, the non-executive chairman. With nearly 15% ownership, he is the largest shareholder.

I don’t see what Jacobson is buying here.  The recovery is underway. It will pick up speed, no doubt but MSM is already above pre Pandemic prices.

Enterprise Financial Services Group Inc

Director John Eulich purchased 7500 shares of EFSC at $36.47.  Enterprise Financial Services Group, Inc. operates as a bank holding company. The firm operates through its subsidiary, Enterprise Bank, which provides banking products and services. It offers various checking and savings accounts, money market accounts, certificates of deposit, and time deposits. Enterprise Bank & Trust is headquartered in Clayton, Missouri. We operate 39 branch offices in Arizona, California, Kansas, Missouri, Nevada and New Mexico, and SBA loan and deposit production offices in Arizona, California, Colorado, Illinois, Indiana, Massachusetts, Michigan, Nevada, Ohio, Oregon, Texas, Utah and Washington.

 

Brown & Brown Insurance

Director Hays purchased 10,000 shares of insurer Brown & Brown at $43.38. BRO is a provider of insurance, reinsurance products and federal programs services to general business, corporate, governmental and quasi-governmental, institutional, professional, trade association and individual clients. Its headquarters are in Daytona Beach, Florida.  According to The Fly on the Wall, Keefe Bruyette analyst Meyer Shields upgraded Brown & Brown to Outperform from Market Perform with a price target of $54, up from $50. The analyst expects accelerating organic growth and margin expansion from the company’s near “pure-play” domestic insurance brokerage status. This implies exposure to “already-widespread” domestic commercial property and casualty rate increases and expected domestic 2021 economic growth, which should drive share outperformance over the next 12 months, Shields tells investors in a research note.
Director Rufel purchased 3636 shares of Charles Schwab at $54.08. SCHW is an American multinational financial services company founded and based in San Francisco, California. Headquartered in the SOMA District, San Francisco, Charles Schwab is the 14th largest banking institution in the US. When and if interest rates will help the margin loan business.  This is not a stock to get rich on but you can make steady returns over a long period of time if you buy it right.  The stock is bumping along the 50-day moving average, so this might be a decent spot.   Investors only have so many dollars, including us, so we are focusing on other opportunities.

Texas Instruments

Director Craighead purchased 5975 shares of TXN at $166.91spending just under $1 million.  TXN reported blowout earning on January 27th, yet itonically it was one of the poorest performers for the week. Several firms upgraded their price targets.  I have to give this the BUY of the Week.  There’s been incessant talk about the chip shortage and how the automobile industry is playing second fiddle to the consumer electronics industry, dominated by the likes of Apple and Samsung.  Taiwan Semiconductor apparently is making the chips for everyone including the in-house designed Apple chips.  Ironically people are convinced that America’s own homegrown chip giant, Intel is in terminal decline.
I remember reading Andy Grove’s memoir written shortly after the era when Japan dominated the semiconductor industry.  In 1990, Japan led the semiconductor industry, with six Japanese companies named in the top ten semiconductor sales leaders. Intel sent teams of engineers to Japan to study what they were doing.  They came home and built semiconductor plants to exacting duplicate designs around the country to eliminate the possibility of slight variations in the manufacturing that could cause poor yields.  Now Intel is regarded as a dying dinosaur.
One of the lessons you learn to be a successful stock investor is to think a bit like Wayne Gretzky, the famous hockey player, who said “I skate to where the puck is going to be, not where it has been.”   The Texas Instrument buy comes on the heels of the outgoing CEO of Intel buying stock himself last week.  We blogged “Insiders Buy Intel, $INTC Fakeout or Fade?
So this week, America’s other homegrown chip giant had a director step up and buy nearly $1 million of stock.  This is likely a wake-up call, investors.  The Taiwan Semiconductor Manufacturing Company Ltd. (TSM) is the world’s first and largest dedicated semiconductor foundry. It is also the lead player with a market share estimate of between 51.5% and 53.9%.  Apple, Qualcomm, Nvidia, AMD, and many others outsource chip manufacturing to TSM.  A new administration determined to promote American jobs and industry, combined with the obvious realization that dependency on Taiwan Semiconductor in an era where we are competing more and more with China is frankly stupid and dangerous.   Would America go to war against China if it invaded Taiwan?  Would we even be able to wage war anywhere at all in the future if all microprocessors were outsourced to Taiwan Semiconductor’s factories in Taiwan?
U.S. Defense Department will soon start soliciting proposals for a program to provide incentives to boost semiconductor manufacturing capabilities in the United States, according to a posting on a government contracting site. Major American semiconductor companies such as Apple Inc, Qualcomm Inc, and Nvidia Corp rely on outside manufacturers such as Taiwan Semiconductor Manufacturing Co Ltd (TSMC) or Samsung Electronics Co Ltd to fabricate their chips in what are called foundries.
The Insiders Fund recommends initiating opportunistic purchases of all American chip manufacturing capacity starting with our two biggest true U.S. manufacturing giants, Intel and Texas Instruments.  Other names include Micron, Infineon NXP, Microchip, On Semiconductor Analog Devices, Skyworks, Cree, and others but INTC and TXN have current insider buying.
Common consensus used to be that being a foundry was a low margin not so sexy business as being the actual inventor and manufacturer of the technology. Based on the historic stock price comparison of INTC, TXN, and TSM that was a very expensive miscalculation.  It will only take a whiff of war or threats against Taiwan from the mainland to create a dramatic reversal of the chart below.  Just keep in mind contrarian positions take more time to fulfill themselves and are often painful going against the herd.  It’s much easier to fall in with the momentum crowd but when the change in thinking happens, the reward is enormous.   Even TSM is looking to build U.S. chip manufacturing capability with a plant underway in Arizona.

Click the chart above to enlarge

Crown Castle

Directors continue to buy this 5G infrastructure play.  We are owners here and it’s comforting to see Director Stephens buy 2000 shares at $164.15.
Crown Castle 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 a dividend yield of 3.28% and wind in their sails, it’s hard to see how investors can lose money here.

 

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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.

Another source for insider buying and selling and much more is FinViz Elite. FinViz stands for financial visualization and they do an amazing job of providing reams of data and the tools to help you get to the bottom of it, the information that helps me make informed decisions and probable outcomes. I’ve been using their site for years and it only gets better over time.

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 believing 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