Insider Weekends: A Look Back At The Hits And Misses Of 2019

Welcome to the last edition of Insider Weekends for 2019. This has been an interesting year when it comes to insider purchases with several well-timed purchases by insiders including,

There were several misses as well including,

  • Jay Hoag’s purchases of Zillow (Z) in late Spring while profitable were not as well timed as his purchases in late 2018
  • the cluster purchase by the insiders of Coty Inc. (COTY), which we were not very enthusiastic about and turned in sizable losses for the insiders
  • purchases of Kinder Morgan by Richard Kinder throughout the year appeared to be a strong signal but the stock is only up marginally (not accounting for dividends)
  • the series of purchases by the founder of Entercom Communications (ETM) that turned out to be overtly optimistic

As we have mentioned in the past, insider purchases are a good starting point for research and I find them most useful for bringing companies to my attention that I might have otherwise missed. They help me in the idea generation part of the investing process but they need more work to see if the insiders are being myopically optimistic despite warning signs for their industry or buying just to signal the market.

Insider buying decreased significantly last week with insiders purchasing $10.27 million of stock during a holiday shortened week compared to $70.81 million in the week prior. Selling also decreased with insiders selling $758.25 million of stock last week compared to $1.88 billion in the week prior.

Sell/Buy Ratio: The insider Sell/Buy ratio is calculated by dividing the total insider sales in a given week by total insider purchases that week. The adjusted ratio for last week went up to 73.81. In other words, insiders sold almost 74 times as much stock as they purchased. The Sell/Buy ratio this week compares unfavorably with the prior week, when the ratio stood at 26.52. 

Note: As mentioned in the first post in this series, certain industries have their preferred metrics such as same store sales for retailers, funds from operations (FFO) for REITs and revenue per available room (RevPAR) for hotels that provide a better basis for comparison than simple valuation metrics. However metrics like Price/Earnings, Price/Sales and Enterprise Value/EBITDA included below should provide a good starting point for analyzing the majority of stocks.

Notable Insider Buys:

1. Enterprise Products Partners L.P. (EPD): $28.18

Director Randa Duncan Williams acquired 176,800 shares of this oil & gas midstream company, paying $27.88 per share for a total amount of $4.93 million.

This is the fourth week in a row EPD has topped our list of insider purchases. We wrote the following about energy midstream sector earlier this month,

The entire sector has been hard hit in the last five years as you can see from the chart below and some of the larger midstream companies have used the downturn to increase their acquisitions, including those of bankrupt smaller companies, which is often a sign that the bottom is near.

One way to avoid betting on a single midstream company, increasing the distribution yield and not worry about K-1 tax forms, is to consider an instrument like the Alerian MLP ETF (AMLP). It has over $7 billion in assets under management, is fairly liquid (average daily volume of 21 million shares traded over a three month period), sports a dividend of 10% and has an expense ratio of 0.85%. The ETF gives you exposure to both Enterprise Product Partners (its top holding) and NuStar Energy but does not include Kinder Morgan as KMI is no longer a master limited partnership (MLP) but has a traditional C corporation structure.

EPD, NS, KMI and AMLP 5 Year Chart

EPD, NS, KMI and AMLP 5 Year Chart

Besides paying an expense ratio that is higher than most ETFs, the other downside of the AMLP ETF is a concentrated portfolio of just 22 positions and MLP companies increasingly choosing to convert into C corporations thanks to the lower corporate tax rate that went into effect in 2018. The ETF has performed worse than EPD, KMI and NS over the last 5 years and especially during the last year.

You can view the list of recent insider transactions for Enterprise Products Partners L.P. here.

P/E: 12.97 Forward P/E: 12.69 Industry P/E: 14.29
P/S: 1.82 Price/Book: 2.52 EV/EBITDA: 11.61
Market Cap: $61.69B Avg. Daily Volume: 5,034,836 52 Week Range: $24.01 – $30.87

2. Gran Tierra Energy Inc. (GTE): $1.2

Director Brooke N. Wade acquired 483,800 shares of this oil & gas exploration and production company, paying $1.24 per share for a total amount of $599,912. These shares were purchased indirectly by Wade Capital Corporation.

You can view the list of recent insider transactions for Gran Tierra Energy Inc. here.

P/E: 600 Forward P/E: 2.61 Industry P/E: 14.29
P/S: 0.76 Price/Book: 0.44 EV/EBITDA: 2.91
Market Cap: $437.76M Avg. Daily Volume: 2,186,365 52 Week Range: $0.92 – $2.64

3. Humana Inc. (HUM): $371

Chief Digital Health & Analytics Officer Heather Cox acquired 750 shares of this health and well-being company, paying $368.40 per share for a total amount of $276,297. Ms. Cox increased her stake by 175.64% to 1,177 shares with this purchase. 380 of these shares were purchased indirectly by Ms. Cox’s spouse.

You can view the list of recent insider transactions for Humana Inc. here.

P/E: 19.76 Forward P/E: 19.88 Industry P/E: 28.37
P/S: 0.78 Price/Book: 4.23 EV/EBITDA: 11.04
Market Cap: $49.13B Avg. Daily Volume: 970,585 52 Week Range: $225.65 – $372.92

4. HEICO Corporation (HEI): $115.09

EVP-CFO & Treasurer Carlos L. Macau acquired 3,000 shares of this aerospace and defense products company, paying $91.21 per share for a total amount of $273,630. 2,000 of these shares were purchased indirectly by Mr. Macau’s son.

You can view the list of recent insider transactions for HEICO Corporation here.

P/E: 48.15 Forward P/E: 39.69 Industry P/E: 25.75
P/S: 6.58 Price/Book: 9.29 EV/EBITDA: 29.65
Market Cap: $14B Avg. Daily Volume: 480,884 52 Week Range: $72.81 – $147.93

5. The Lovesac Company (LOVE): $14.83

Director Andrew R. Heyer acquired 14,460 shares of this home furnishings company, paying $14.32 per share for a total amount of $207,060.

You can view the list of recent insider transactions for The Lovesac Company here.

P/E: N/A Forward P/E: -29.08 Industry P/E: 18.91
P/S: 1.05 Price/Book: 2.55 EV/EBITDA: -30.92
Market Cap: $215.61M Avg. Daily Volume: 390,436 52 Week Range: $10.33 – $46.79

You can view the full list of purchases from this Insider Buying page.

Notable Insider Sales:

1. Uber Technologies, Inc. (UBER): $30.17

Director Travis Cordell Kalanick sold 8,220,429 shares of Uber for $30.34, generating $249.39 million from the sale.

You can view the list of recent insider transactions for Uber Technologies, Inc. here.

P/E: N/A Forward P/E: -12.73 Industry P/E: 38.68
P/S: 3.94 Price/Book: 3.41 EV/EBITDA: -5.91
Market Cap: $51.46B Avg. Daily Volume: 25,819,033 52 Week Range: $25.58 – $47.08

2. Walmart Inc. (WMT): $119.59

Executive Vice President Marc E. Lore sold 85,000 shares of Walmart for $120.57, generating $10.25 million from the sale. 37,789 of these shares were sold as a result of exercising options immediately prior to the sale.

You can view the list of recent insider transactions for Walmart Inc. here.

P/E: 23.92 Forward P/E: 22.91 Industry P/E: 23.07
P/S: 0.65 Price/Book: 4.74 EV/EBITDA: 12.67
Market Cap: $339.3B Avg. Daily Volume: 4,872,911 52 Week Range: $91.64 – $125.38

3. Littelfuse, Inc. (LFUS): $192.02

Director Nathan Zommer sold 52,675 shares of this electronic components company for $189.85, generating $10 million from the sale.

You can view the list of recent insider transactions for Littelfuse, Inc. here.

P/E: 32.17 Forward P/E: 28.24 Industry P/E: 28.27
P/S: 2.98 Price/Book: 3.18 EV/EBITDA: 15.92
Market Cap: $4.68B Avg. Daily Volume: 122,895 52 Week Range: $149.8 – $206

4. Slack Technologies, Inc. (WORK): $22

Shares of this productivity software company were sold by 3 insiders:

  • Director Andrew Braccia sold 405,000 shares for $21.47, generating $8.69 million from the sale. These shares were sold indirectly through a trust.
  • Chief Executive Officer Stewart Butterfield sold 10,000 shares for $21.30, generating $213,000 from the sale.
  • Chief Technology Officer Cal Henderson sold 6,000 shares for $21.29, generating $127,740 from the sale. These shares were sold indirectly through a trust.

You can view the list of recent insider transactions for Slack Technologies, Inc. here.

P/E: N/A Forward P/E: -104.76 Industry P/E: 45.68
P/S: 21.22 Price/Book: 16.5 EV/EBITDA: -22.13
Market Cap: $12.11B Avg. Daily Volume: 9,504,860 52 Week Range: $19.53 – $42

5. O’Reilly Automotive, Inc. (ORLY): $437.21

Chairman of the Board David E. O’Reilly sold 18,000 shares of this automotive retail company for $442.65, generating $7.97 million from the sale. 13,500 of these shares were sold indirectly through a 401K Plan.

You can view the list of recent insider transactions for O’Reilly Automotive, Inc. here.

P/E: 25.21 Forward P/E: 21.93 Industry P/E: 24.14
P/S: 3.31 Price/Book: 199.19 EV/EBITDA: 17.71
Market Cap: $33.08B Avg. Daily Volume: 434,353 52 Week Range: $329.86 – $454.31

You can view the full list of sales from this Insider Sales page.

The list of all insider purchases and sales by management people is only available to InsideArbitrage Premium members.

Disclaimer: I hold longs position in Zillow and Entercom Communications. Please do your own due diligence before buying or selling any securities mentioned in this article. We do not warrant the completeness or accuracy of the content or data provided in this article.

Connect with me on LinkedIn: http://www.linkedin.com/in/asifsuria or follow me on Twitter @asifsuria

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