Insider buying has been noticeably scarce in this bull leg of a market making all-time highs. The small amount of buying is not performing particularly well either.  You might find this news surprising from a hedge fund manager who has made a living reading these tea leaves for 23 years.  Take last Thursday, February 22nd, the morning after Nvidia reported blockbuster earnings.  I’m tracking about 400 stocks where insiders have purchased at least $200,000 of their company’s stock in the last year. This number has remained constant at 300-400 for the last 23 years. The average returns of those stocks on Thursday was just 0.01%, while the S&P 500 stomped further by nearly 2%.  Frustrating is not the right word.

Selling is overwhelming in this market, but great investments always have sellers. What is more worrisome is that there are few buyers.  There is a plethora of executives unloading shares; amongst them, Jeff Bezos of Amazon, Mark Zuckerberg of Meta, and Picahi Sundar of Google. The market may not be a flashing red warning sign, but I have seen this movie before, and the ending is not well received.

Is Following Insider Buying Dead as a Strategy?  It’s hard to proclaim that common sense has died, but it sure seems in hibernation.

You can be an insider, too– by clicking here

 

Finviz Chart

Name: John Jr Rakolta
Position: Director
Transaction Date: 2024-02-16 Shares Bought: 20,430 Average Price Paid: $57.00 Cost: $1,164,510
Company: Agree Realty Corp (ADC)

Agree Realty Corp is a fully integrated real estate investment trust (REIT) that principally owns, acquires, develops, and operates retail assets that are net leased to industry leaders. Richard Agree, the current executive chairman, founded the company in 1971, and its common stock was listed on the New York Stock Exchange in 1994. The Operating Partnership, the sole general partner with a 99.6% common interest as of December 31, 2022, owns the Company’s assets and oversees all of its activities. According to the Operating Partnership’s limited partnership agreement, the Company, as the sole general partner, has all authority and discretion in managing and supervising the Operating Partnership. The company was founded in December 1993 under Maryland law. The Company believes it has operated and will continue to operate in a way that qualifies it as a REIT under the Internal Revenue Code of 1986, as amended (“Internal Revenue Code”).

Ambassador Rakolta formerly served on the Board from August 2011 to September 2019, when he was appointed US Ambassador to the UAE. Before his confirmation, Mr. Rakolta was chairman and CEO of Walbridge, a privately held construction company. Mr. Rakolta is a member of both the Metropolitan Affairs Corporation and the Coalition for Detroit Schoolchildren. He is a director and member of the Detroit Regional Chamber’s Executive Committee, as well as on the boards of New Detroit, Inc., the College for Creative Studies, and Business Leaders for Michigan. Mr. Rakolta was appointed Honorary Consul General of Romania to the United States in 1998. In 1970, Marquette University awarded him a Bachelor of Science in Civil Engineering.

Opinion:  REITS have historically been one of the best inflation hedges for investors.  Lately this investment strategy has been disastrous.  I have to believe that the Fed will lower interest rates not because inflation has suddenly abated but because of some related accident or repercussion from the abnormally high interest rates in the U.S.  When they do, they may be forced to drop them faster than expected.  REITS that are leased up with blue chip credits should soar. 

Agree Realty’s portfolio consisted of 1,839 properties across 48 states, with approximately 38.1 million square feet of gross leasable area​​. The portfolio was 99.7% leased with a weighted-average remaining lease term of approximately 8.8 years. This indicates a stable and long-term lease commitment from tenants​​. A significant portion of the portfolio’s income comes from high-credit-quality tenants. Specifically, 67.8% of annualized base rents were generated from investment-grade retail tenants. This suggests that a substantial majority of Agree Realty’s tenants have a strong financial standing, reducing the risk of default on lease payments​​.

 

Finviz Chart

Name: Dean Stoecker
Position: Director / 10% Owner
Transaction Date: 2024-02-15 Shares Bought: 42,500 Average Price Paid: $47.90 Cost: $2,035,750
Company: Alteryx Inc. (AYX)

The Alteryx Analytics Automation Platform makes it possible to provide “analytics for all” by automating data engineering, analytics, reporting, machine learning, and data science operations from beginning to end. The company platform enables businesses to democratize data analytics across their organizations for a variety of use cases by adding embedded artificial intelligence (AI) capabilities that accelerate the discovery and sharing of analytics insights. Data professionals, regardless of technical expertise, are enabled to discover insights and solve problems, whether in the cloud or on-premise. The platform offers organizations that value insights a unified solution for automated data preparation and analytics, approachable machine learning, and AI-generated insights. Their platform is widely distributed through both direct and indirect sales and marketing channels. The organization has formed strong ties with channel partners to help them expand their sales and marketing operations internationally. 

Dean Stoecker is a co-founder and executive chairman of the board. Dean founded Alteryx in 1997 and remained as CEO until October 2020, leading to tremendous organic growth and a successful IPO in March 2017. Dean’s leadership and motivational skills, as well as his ability to conceive, communicate, and implement a vision, were critical to the company’s 20-year success. Dean is dedicated to humanizing data science and analytics, as seen by the company’s culture, extensive tools for continuing education, and efforts to influence societal change. Dean has worked in sales and business leadership roles at Strategic Mapping and Dun & Bradstreet before co-founding Alteryx. Dean earned his MBA from Pepperdine University and his undergraduate degree in international business from the University of Colorado at Boulder.

Opinion: I wrote about this last week. It’s a head scratcher and I have no additional insight. The arbitrage return of 35cts on a $3.6 million investment makes little sense to me. Alteryx  in December reached an agreement to be acquired by private equity firms Clearlake Capital Group and Insight Partners for $4.4 billion. Under the terms of the agreement, Alteryx’s stockholders will receive $48.25 per share upon closing, which remains subject to customary closing conditions and approvals and is expected during the first half of 2024. I wrote last week, “This arbitrage hardly seems worth the effort for less than a dollar premium unless another bidder is forthcoming.  A founder and COB buying in front of an impending counteroffer is the definition of material information and illegal insider trading. A billionaire in their right mind would never take this risk of making a few million dollars trading on freedom-ending insider information.”

 

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Name: SC US (TTGP) LTD., SCGGF III – U.S./India Management L.P., SEQUOIA CAPITAL U.S. VENTURE FUND XIV L.P.
Position: 10% Owner
Transaction Date: 2024-02-20 Shares Bought: 2,020,273 Average Price Paid: $28.54 Cost: $57,655,710
Company: Maplebear Inc. (CART)

Maplebear Inc., doing business as Instacart, offers online grocery shopping services to households in North America. It offers and delivers a wide range of products, including food, wine, consumer health, pet care, ready-made meals, and more. The company provides its services via a mobile app and a website. It also offers software-as-a-service solutions to retailers. The company was established in 2012 and is headquartered in San Francisco, California.

SC US (TTGP), LTD., a well-known investment group, has recently expanded its position in Amplitude Inc., a software company that specializes in digital analytics. SC US (TTGP), LTD., based at 2800 Sand Hill Rd, Suite 101, Menlo Park, CA, is recognized for its strategic investments, which largely target the technology and financial services sectors. On September 21, 2023, SC US (TTGP), LTD., a well-known investment firm, made a huge move in the stock market by purchasing a new interest in Maplebear Inc.

Sequoia Capital Global Growth Fund III – US-India Annex Fund is a private equity growth expansion fund managed by Peak XV Partners and Sequoia Capital. The fund is based in Menlo Park, California, and invests in both the United States and India. The fund prefers to invest in worldwide markets.

Sequoia Capital U.S. Venture Fund XIV is a 2013 vintage venture capital fund managed by Sequoia Capital that focuses on seed, early, and growth-stage investments in private firms in the technology sector. The fund is situated in Menlo Park, California, and invests globally. The fund mostly invests in the technology industry.

Opinion: Instacart was the last of the SPACS that you’ve ever heard of hitting the market. It priced its IPO at $30 on September 18th near the bottom of the market in 2023. The stock opened at $40 but never rallied with the rest of the tech market like Door Dash, Uber, and Lyft, Instacart is one of the dominant gig economy survivors and from my own personal point of view is far more useful than DoorDash. The economics of it don’t seem that bad either. The Company reported solid 4th quarter earnings on February 13th leading JP Morgan analyst to write, “The company reported solid Q4 results transaction volume upside and improved profitability” The big worry about this stock was the lockup expiring February 15th. Key employees leaving the company left many unanswered questions. Some of this might be allayed as Sequoia investors bought rather than sold $57 million worth of shares sending a message to the investment community that they were here for the long term.

 

Finviz Chart

Name: Ivo Jurek
Position: Chief Executive Officer
Transaction Date: 2024-02-16 Shares Bought: 20,492 Average Price Paid: $12.20 Cost: $250,002
Company: Gates Industrial Corp plc (GTES)

Gates Industrial Corp plc is a global manufacturer of innovative, highly engineered power transmission and fluid power systems. The products are used in a wide range of end markets, including automotive replacement and first-fit, diversified industrial, industrial off-highway, industrial on-highway, and personal mobility.  The company distributes its products all over the world under the Gates name, which is recognized by distributors, equipment manufacturers, installers, and end users as a premium brand for quality and technological innovation; this reputation has been created over more than 110 years, dating back to Gates’ establishment in 1911. Within the many end markets they service, the highly engineered products are frequently important components in applications where the cost of downtime is significant in comparison to the cost of the products, prompting end users to pay a premium for greater performance and availability.

Ivo Jurek became Chief Executive Officer of Gates Corporation in May 2015 after spending his entire career in the industrial sector, both in the United States and globally, where he held senior leadership roles at some of the world’s biggest industrial corporations. Ivo was the President of Eaton’s Electrical business in Asia Pacific before joining Gates. He held the positions of Group President at Cooper Industries and President at Cooper Bussmann. Before joining Cooper, he worked for International Rectifier Corporation, a prominent power semiconductor manufacturer, where he held senior general management positions in the automotive and electronic motion systems sectors. He has served in several leadership roles at TRW Automotive for more than eight years. His vision for Gates in the future includes a dedication to growth, innovation, and operational excellence.

Opinion: It appears that Blackstone is closing out its ownership position of Gates Corporation. According to ChapGPT4, ‘As of the latest available information, Blackstone Capital Partners Cayman VI LP owns 22.89 million shares of Gates Industrial Corporation plc, representing 8.67% of the company​​. This percentage reflects Blackstone’s ownership stake after various transactions, including secondary offerings and any other adjustments in their holdings.’

The Company reported Q4 revenue $863.3M, consensus $862.89M.  CEO Ivo Jurek commented, “We finished the year on a strong note delivering solid margin expansion year-over-year and robust operating cash flow in the fourth quarter while reducing our net leverage ratio to 2.3x. For full year 2023, our team generated a meaningful margin increase and drove significant improvement in our free cash flow while operating in an uneven global demand environment. We enter 2024 focused on progressing our enterprise initiatives and enhancing our business performance. Our cash balance and net leverage position is in its strongest position as a public company and we remain highly focused on further reducing our net leverage ratio and opportunistically utilizing our recently approved $100 million share repurchase authorization. We are optimistic about the shareholder value creation opportunities in front of us. I thank the global Gates team for their commitment and dedication.”

 

 

Finviz Chart

Name: Michael Johnson
Position: Chairman & CEO
Transaction Date: 2024-02-16 Shares Bought: 61,725 Average Price Paid: $8.07 Cost: $250,002
Company: Herbalife Ltd. (HLF)

Herbalife is a global nutrition company that sells health and wellness products to consumers in 95 markets, including nations and territories, through a direct-selling strategy. The goods are basically categorized as weight control, focused nutrition, and sports nutrition. They use a direct-selling business strategy to distribute and market the nutrition products to and through a global network of independent members, or Members. Members include both customers who buy things for personal use and distributors who want to resell them or develop a sales organization. They feel that direct selling is the best fit for their company because it combines the distribution and sale of their goods with individualized assistance, coaching, and education, resulting in a supportive and understanding community of people who value health and nutrition. The company’s science-backed products assist Members and their customers in improving their overall health, increasing their wellness, and achieving their fitness and sports goals.

Michael Johnson is the chairman and CEO of Herbalife, a leading health and wellness firm and community with clients in over 90 regions. Mr. Johnson is an accomplished business leader who has vast experience growing organizations abroad and leading successful company changes. He was CEO of Herbalife from 2003 to 2017, chairman from 2007 to early 2020, and CEO from 2019 to early 2020. In 2022, he returned as chairman and CEO. During Mr. Johnson’s first term as CEO of Herbalife, the company’s sales nearly doubled and its global operations expanded from 58 to 94 markets. Before joining Herbalife, Mr. Johnson served as president of numerous Walt Disney departments, including Walt Disney International, Walt Disney Asia, and Walt Disney Studios’ Worldwide Home Entertainment division. Mr. Johnson is a health and fitness enthusiast who has spent over 30 years skiing, and competing in triathlons, and cycling races.

Opinion: Herbalife was the subject of an epic battle between Bill Ackman and Carl Icahn that had little to do with the investment merits but was an epic feud between two hedge fund giants. Herbalife. Numbers generally don’t lie and they have not been looking good for HLF.

Finviz Chart

Name: Barry A Sholem
Position: Director
Transaction Date: 2024-02-21 Shares Bought: 80,000 Average Price Paid: $6.69 Cost: $535,200
Company: Hudson Pacific Properties Inc. (HPP)

Hudson Pacific Properties Inc. is a vertically integrated real estate investment trust that provides end-to-end real estate solutions to dynamic tenants in the technology and media industries, which are synergistic, merging, and experiencing secular development. The company purchases, repositions, develops, and operates long-term high-quality office and cutting-edge studio facilities in high-barrier-to-entry technology and media hubs. Their key investment markets include Los Angeles, the San Francisco Bay Area, Seattle, New York, Vancouver, British Columbia, and Greater London, United Kingdom. The company invests throughout the risk-return spectrum, prioritizing situations that allow to use of leasing, capital investment, and operating knowledge, as well as strong strategic partnerships, to produce additional shareholder value. They invest in Class-A office and studio assets in high-barrier-to-entry, innovation-driven submarkets with strong growth potential. 

Barry Sholem has been a member of the Board since March 2023. He was the Founder and Partner of Real Estate for investment advisory firm MSD Partners, L.P., and is currently the Chairman and Senior Advisor of Real Estate for BDT & MSD Partners, a merchant bank. Before joining MSD Partners, L.P., Sholem was Chairman of DLJ Real Estate Capital Partners, a real estate firm he co-founded that invested in a variety of real estate-related assets. Before that, he was Managing Director at Credit Suisse First Boston and Head of Goldman Sachs’ West Coast Real Estate Group. He is also a board member for SITE Centers, where he serves on the Nominations and ESG Committees. Sholem earned a Bachelor of Arts in Economics and Political Science from Brown University and an MBA from Northwestern University’s J.L. Kellogg Graduate School of Management.

Opinion: Office REITs have had a tough go of it lately and its hard to see how Hudson Pacific Properties is immune from this secular trend.


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 You can be an insider, too– by clicking here

Insiders sell the 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 with any stock market experience 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 of any transaction, buy, sell, exercise, or any other within 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. SECForm4 is one of the smaller ones, but I like supporting Frank. He is not arrogant. He’s helpful and has great prices.

The bar is different from selling because the natural state of management is to be a seller. This is because most companies provide significant amounts of management compensation packages as stock and options. Therefore, we analyze unusual patterns with selling, 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, are horrendously poor. Also, planned sales that pop up out of nowhere are basically sales and are seeking cover under this corporate welfare loophole. I also generally ignore 10 percent shareholders as they tend to be OPM (other people’s money) and perhaps not the smart money on which we are trying to read the tea leaves. I say generally because some 10% shareholders are great investors. Think Warren  Buffett and others

Of course, insiders can also be wrong about their Company’s prospects. Don’t let anyone fool you into believing they never make mistakes.  Do your own analysis. They can easily be wrong, and in many cases, maybe most cases, have no more idea what the future may hold than you or me. In short, you can lose money following them.  We have, and we curse aloud; what were they thinking!

We like Fly on the Wall for keeping up with what events might be happening, analysts’ comments, and whatever else could be moving the stock.  Dow Jones news service is an essential tool, but many services pick up their feed like they do Bloomberg. For quick financial analysis, it’s hard to beat Old School Value.

A big callout to my assistant Ambreen, who sets up this conversation by listing the notable buys that I’ve identified.  She probes the 10k for a reasonable description of the business. I’ve found that to be the most accurate and succinct place to find out what a business actually does.  Open AI’s powers Bing and Google’s Bard are now essential tools.

This blog is solely for educational purposes and the author’s own amusement.  Think of the blog as part of my personal investment journal that I am willing to share with the DIY investor.  There are also many parts that I am not willing to share if I think it could influence trading action or be detrimental to the Fund’s partners. We could be long, short, or have no position at all in any of the stocks mentioned and express no written or implied obligation to disclose any of that.

The Insiders Fund is for qualified investors and by Prospectus only. Nothing herein should be construed otherwise.  THE INSIDERS FUND prefers to invest in companies at or near prices that management has been willing to invest significant amounts of their own money in, but we have no requirement to do so. We also invest in many companies in anticipation of future insider buying or with the expectation that there is none at all.

You can be an insider, too– by clicking here

Prosperous Trading,

Harvey Sax
Insomniac Hedge Fund Guy