Insider Weekends: Insider Buying Once Again Surpasses Insider Selling

Welcome to edition 509 of Insider Weekends. In our last edition we mentioned how for the first time in nearly 10 years we saw insider buying outpace selling and wrote the following,

We have been tracking insider data for nearly 10 years and in all this time we have not come across a single week where insider buying outpaced insider selling. The rapid drop in the markets over the last few weeks that saw the volatility index (VIX) jump to 75 last Thursday (the peak during the 2008-2009 Great Recession was 79) also caused insiders to start buying their own stocks at an accelerated pace.

We have been bearish for several weeks now and have written about showing restraint despite the insiders stepping up their insider buying because insiders as a group generally tend to be optimistic about their own companies, sometime buy to “signal” the market and like value investors often tend to be early.

The market continued its decline last week but the volatility index or the “fear index” (VIX) also declined, indicating there was some exhaustion of the fear we were experiencing in the market. With the U.S. surpassing all other countries, besides China and Italy, in the number of confirmed COVID-19 cases, the news is likely to get worse over the next few days. On account of inadequate testing and lack of preparation, the number of cases in the U.S. is potentially significantly understated.

The State Department’s strong recommendation to all U.S. citizens to return home unless they want to stay out of the country for an extended period combined with one of the largest long-haul airline, Emirates’, decision to suspend all passenger flights to all locations, points to a potential nationwide shutdown in the U.S. in the next few days or weeks. This is in keeping with what we saw in China and Italy where local counties/provinces shut down first, followed by large regions and then the entire country. The San Francisco Bay Area was already in a lock down for several days before all of California went into a lock down. The streets of San Francisco are eerily empty.

A Nearly Empty Union Square in San Francisco

A Nearly Empty Union Square in San Francisco (click to enlarge)

Depending on our response to this crisis, this could be a one quarter event with a quick peak and a decline or a long two quarter event with the pain spread over several months. If the situation is the former, then certain stocks look very attractive after large declines that have seen anywhere from half to more than two-thirds of their market value wiped out in the span of a month. Selling usually begets more selling as leveraged positions are unwound, funds respond to redemption requests and retail investors respond to the bad news they see everyday.

I have been unwinding the hedges I put in place more than a month ago, shorted the volatility index last week and plan to start nibbling on the long side from the COVID-19 watch list I wrote about earlier this month.

Insider buying decreased last week with insiders purchasing $533.25 million of stock compared to $682.88 million in the week prior. Selling also decreased with insiders selling $470.58 million of stock last week compared to $668.52 million 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 dropped to 0.88. In other words, insiders sold less than the stock they purchased. The Sell/Buy ratio this week compares favorably with the prior week, when the ratio stood at 0.98. 

Insider Sector Heat Map March 20, 2020

Insider Sector Heat Map March 20, 2020 (click to enlarge)

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. Prospect Capital Corporation (PSEC): $4.8

Chief Executive Officer John F. Barry acquired 22,018,531 shares of this business development company, paying $4.71 per share for a total amount of $103.63 million. Mr. Barry increased his stake by 53.70% to 63,024,402 shares with this purchase.

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

P/E: 13.04 Forward P/E: 7.16 Industry P/E: 11.11
P/S: 2.68 Price/Book: 0.55 EV/EBITDA: N/A
Market Cap: $1.76B Avg. Daily Volume: 3,326,842 52 Week Range: $4 – $6.87

2. Dell Technologies Inc. (DELL): $32.49

Chief Executive Officer Michael S. Dell acquired 828,199 shares of Dell, paying $31.70 per share for a total amount of $26.25 million. Mr. Dell increased his stake by 149.97% to 1,380,440 shares with this purchase.

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

P/E: 5.38 Forward P/E: 4.54 Industry P/E: 16.15
P/S: 0.26 Price/Book: N/A EV/EBITDA: 8.14
Market Cap: $24.06B Avg. Daily Volume: 3,301,421 52 Week Range: $25.51 – $70.55

3. Simon Property Group, Inc. (SPG): $48.14

Shares of this retail REIT were acquired by 8 insiders:

  • Director Herbert Simon acquired 188,572 shares, paying $52.67 per share for a total amount of $9.93 million. These shares were purchased indirectly through various trusts.
  • CEO/Chairman/President David Simon acquired 150,000 shares, paying $60.83 per share for a total amount of $9.12 million. Mr. Simon increased his stake by 18.66% to 953,924 shares with this purchase.
  • Director Stefan M. Selig acquired 15,000 shares, paying $46.17 per share for a total amount of $692,625. Mr. Selig increased his stake by 498.34% to 18,010 shares with this purchase.
  • Director Larry C. Glasscock acquired 10,000 shares, paying $58.98 per share for a total amount of $589,788. Mr. Glasscock increased his stake by 68.21% to 24,661 shares with this purchase.
  • Director Allan B. Hubbard acquired 3,615 shares, paying $54.81 per share for a total amount of $198,138. Mr. Hubbard increased his stake by 23.89% to 18,747 shares with this purchase.
  • Director Reuben S. Leibowitz acquired 2,500 shares, paying $58.99 per share for a total amount of $147,470. Mr. Leibowitz increased his stake by 7.09% to 37,769 shares with this purchase.
  • Director Albert J. Smith acquired 1,750 shares, paying $52.03 per share for a total amount of $91,052. Mr. Smith increased his stake by 3.89% to 46,761 shares with this purchase.
  • Director Daniel C. Smith acquired 921 shares, paying $53.14 per share for a total amount of $48,946. Mr. Smith increased his stake by 6.54% to 15,006 shares with this purchase.

These purchases by the insiders of the largest mall operator in the United States come right after the company increased its line of credit and then decided to shut down all its domestic malls until March 29th. The stock declined nearly 24% in a single day following this announcement.

After seeing the stocks of several brick-and-mortar retailers decline sharply I was thinking about the short-term and long-term impact on their business. Besides the temporary impact of their stored being closed, this event could accelerate the shift to online shopping and hurt those retailers that have not yet successfully transitioned to a hybrid online and physical store retail model.

You can view the list of recent insider transactions for Simon Property Group, Inc. here.

P/E: 7.07 Forward P/E: 6.58 Industry P/E: 23.39
P/S: 2.6 Price/Book: 5.95 EV/EBITDA: 9.62
Market Cap: $14.77B Avg. Daily Volume: 3,300,137 52 Week Range: $43.52 – $186.4

4. Wells Fargo & Company (WFC): $26.5

Shares of Wells Fargo were acquired by 2 insiders:

  • CEO & President Charles W. Scharf acquired 173,000 shares, paying $28.69 per share for a total amount of $4.96 million. Mr. Scharf increased his stake by 4417.77% to 176,916 shares with this purchase.
  • Director Charles H. Noski acquired 20,000 shares, paying $29.53 per share for a total amount of $590,600. These shares were purchased indirectly through a trust.

You can view the list of recent insider transactions for Wells Fargo & Company here.

P/E: 6.54 Forward P/E: 6.13 Industry P/E: 6.48
P/S: 1.31 Price/Book: 0.66 EV/EBITDA: N/A
Market Cap: $108.37B Avg. Daily Volume: 29,273,729 52 Week Range: $25.89 – $54.75

5. Cloudera, Inc. (CLDR): $6.95

Director Peter H. Fenton acquired 719,000 shares of this software application company, paying $6.95 per share for a total amount of $4.99 million. Mr. Fenton increased his stake by 891.11% to 799,686 shares with this purchase.

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

P/E: N/A Forward P/E: 18.29 Industry P/E: 35.81
P/S: 2.51 Price/Book: 1.41 EV/EBITDA: -7.57
Market Cap: $2B Avg. Daily Volume: 4,918,840 52 Week Range: $4.76 – $12.22

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

Notable Insider Sales:

1. Snap Inc. (SNAP): $10.09

Shares of this social media company were sold by 4 insiders:

  • Chief Technology Officer Robert C. Murphy sold 2,500,000 shares for $9.31, generating $23,274,751 from the sale. These shares were sold indirectly through a trust.
  • Chief Strategy Officer Jared Grusd sold 55,795 shares for $9.37, generating $522,682 from the sale.
  • Chief Business Officer Jeremi Gorman sold 42,033 shares for $9.48, generating $398,368 from the sale.
  • Chief Financial Officer Derek Andersen sold 39,801 shares for $9.47, generating $377,059 from the sale.

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

P/E: N/A Forward P/E: 37.37 Industry P/E: 24.68
P/S: 8.35 Price/Book: 6.32 EV/EBITDA: -14.69
Market Cap: $14.33B Avg. Daily Volume: 29,533,663 52 Week Range: $7.89 – $19.755

2. Forty Seven, Inc. (FTSV): $91.84

Director Irving Weissman sold 250,000 shares of this biotech company for $94.37, generating $23.59 million from the sale. These shares were sold indirectly through a trust.

Gilead Sciences is in the process of acquiring Forty Seven in an all cash deal worth $95.50.

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

P/E: N/A Forward P/E: -33.89 Industry P/E: 383.57
P/S: 282.03 Price/Book: 24.52 EV/EBITDA: -45.76
Market Cap: $4.42B Avg. Daily Volume: 1,534,521 52 Week Range: $5.53 – $95.12

3. Digital Realty Trust, Inc. (DLR): $121.2

Shares of this office REIT were sold by 3 insiders:

  • Managing Director, Europe David C. Ruberg sold 125,000 shares for $126.62, generating $15.83 million from the sale.
  • Director Laurence A. Chapman sold 8,021 shares for $130.00, generating $1.04 million from the sale.
  • Director Jean F. Mandeville sold 1,000 shares for $131.68, generating $131,680 from the sale.

You can view the list of recent insider transactions for Digital Realty Trust, Inc. here.

P/E: 51.57 Forward P/E: 76.71 Industry P/E: 23.39
P/S: 9.77 Price/Book: 3 EV/EBITDA: 22.27
Market Cap: $31.42B Avg. Daily Volume: 3,318,944 52 Week Range: $110.84 – $143.61

4. Copart, Inc. (CPRT): $60.15

Director Daniel J. Englander sold 190,000 shares of this online auctions and vehicle remarketing services provider for $64.31, generating $12.22 million from the sale. 80,000 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 Copart, Inc. here.

P/E: 19.57 Forward P/E: 19.28 Industry P/E: 31.04
P/S: 6.32 Price/Book: 6.61 EV/EBITDA: 16.13
Market Cap: $14.06B Avg. Daily Volume: 2,067,452 52 Week Range: $58.86 – $104.88

5. Adobe Inc. (ADBE): $295.34

Shares of Adobe were sold by 2 insiders:

  • EVP WW Field Operations Matthew Thompson sold 37,751 shares for $298.16, generating $11.26 million from the sale. These shares were sold indirectly through a trust.
  • EVP, Chief Product Officer Scott Belsky sold 600 shares for $301.40, generating $180,842 from the sale.

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

P/E: 44.76 Forward P/E: 26.35 Industry P/E: 35.81
P/S: 12.24 Price/Book: 13.6 EV/EBITDA: 35.04
Market Cap: $142.73B Avg. Daily Volume: 3,265,483 52 Week Range: $255.13 – $386.75

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: 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.

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