Insider Weekends: Massive Stimulus Package Helps Markets Even As Insider Buying Wanes

Welcome to edition 510 of Insider Weekends. After two weeks of significant buying that saw insiders pick up more than $1.2 billion worth of stock, insider buying decreased significantly last week with insiders purchasing $117.91 million of stock compared to $533.25 million in the week prior. Selling also decreased with insiders selling $442.67 million of stock last week compared to $470.58 million in the week prior.

This slowdown is the typical end of quarter slow down as companies enter their quiet period before earnings season.

News of a massive $2 trillion stimulus package that passed both the senate and the house helped buoy markets with the S&P 500 rebounding more than 10% for the week despite a 3.37% drop last Friday. The package significantly boosts unemployment pay with laid off workers getting an additional $600 per week for a period of four months above and beyond what they get through their state. This could translate into laid off workers getting over $1,000 a week in some instances. Most adults will get a one time payment of $1,200 (with income based limits) and married couples will also receive an extra $500 per child under the age of 16.

Small businesses also have several benefits under this stimulus package including the ability to defer 2019 payroll taxes with 50% due by the end of 2021 and the other 50% due by the end of 2022. Small businesses can apply for loans through their banks that are backed by the small business administration and have a loan forgiveness clause. According to this article in The New York Times,

Loans are limited to $10 million, to businesses with 500 employees or less. Businesses that have recently laid off workers would be required to repay a larger portion of their loans, and loans covering salaries of over $100,000 a year wouldn’t qualify for forgiveness.

Businesses would not have to repay loans covering up to eight weeks worth of payroll expenses. That means that once businesses receive their loans, a new clock will begin to tick: They’ll have to use the money within two months to avoid repaying it.

The news is going to get worse in the next few weeks when it comes to the number of infections, the number of deaths and we are likely to hear about more restrictions to both travel and commerce. However with the stimulus package kicking in and a very accommodative Fed, things don’t look quite as bleak as they did earlier this month. If we continue to bungle our response to this crisis and don’t institute a national shutdown, then all bets are off. We wrote the following last week about how I plan to be positioned in the near future,

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.

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 3.75. In other words, insiders sold almost 4 times as much stock as they purchased. The Sell/Buy ratio this week compares unfavorably with the prior week, when the ratio stood at 0.88. 

Insider Sector Heat Map March 27, 2020

Insider Sector Heat Map March 27, 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): $4.49

Shares of this asset management company were acquired by 2 insiders:

  • Chief Executive Officer John F. Barry acquired 5,829,249 shares, paying $4.71 per share for a total amount of $27.47 million. Mr. Barry increased his stake by 9.25% to 68,862,456 shares with this purchase.
  • Chief Operationg Officer Grier M. Eliasek acquired 100,000 shares, paying $4.45 per share for a total amount of $445,000. Mr. Eliasek increased his stake by 7.99% to 1,352,196 shares with this purchase.

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

P/E: 12.2 Forward P/E: 6.7 Industry P/E: 12.61
P/S: 2.5 Price/Book: 0.52 EV/EBITDA: N/A
Market Cap: $1.65B Avg. Daily Volume: 3,563,864 52 Week Range: $4 – $6.87

2. AMERCO (UHAL): $288.24

Chairman, President Edward J. Shoen acquired 9,300 shares of this do-it-yourself moving and storage operator, paying $251.56 per share for a total amount of $2.34 million. These shares were purchased indirectly by Willow Grove Holdings LP.

Mr. Shoen stepped up his insider purchases in March following a couple of $1 million purchases in February. The company’s General Counsel also joined him with a couple of small open market purchases. We wrote the following about AMERCO after the first of Mr. Shoen’s insider purchases in February,

Amerco offers the U-Haul line of self-moving trucks, equipment related to moving and self-storage. While the self-storage revenue has been growing and now is their second biggest revenue generator, it represented only 11.5% of total revenue in Q4 2019. Their core self-moving trucks business accounts for more than two-thirds of total revenue and saw a modest 1% drop year-over-year.

While the stock appears cheap at just over 8 times EBITDA it has been cheap for a long time and is close to the high end of its five year EV/EBITDA range. This vote of confidence through insider buying is encouraging but I would like to see the core self-moving trucks business improve before I would get interested in Amerco, especially in light of Amazon.com’s decision to stop using their trucks for last mile deliveries.

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

P/E: 17.63 Forward P/E: 12.83 Industry P/E: 33.98
P/S: 1.46 Price/Book: 1.33 EV/EBITDA: 7.98
Market Cap: $5.65B Avg. Daily Volume: 61,161 52 Week Range: $222.34 – $426.5

3. Equity Commonwealth (EQC): $31.9

Director Gerald A. Spector acquired 100,000 shares of this office REIT, paying $28.84 per share for a total amount of $2.89 million. These shares were purchased indirectly through a trust.

You can view the list of recent insider transactions for Equity Commonwealth here.

P/E: 8.18 Forward P/E: 145 Industry P/E: 27.07
P/S: 30.44 Price/Book: 1.24 EV/EBITDA: 26.91
Market Cap: $3.89B Avg. Daily Volume: 897,777 52 Week Range: $27.62 – $34.95

4. GMS Inc. (GMS): $15.49

Shares of this building products & equipment company were acquired by 2 insiders:

  • Director Ronald R. Ross acquired 189,802 shares, paying $13.22 per share for a total amount of $2.51 million. Mr. Ross increased his stake by 75.68% to 440,592 shares with this purchase.
  • Director David J. Smith acquired 3,000 shares, paying $12.10 per share for a total amount of $36,298. Mr. Smith increased his stake by 21.28% to 17,101 shares with this purchase.

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

P/E: 8.09 Forward P/E: 4.77 Industry P/E: 9.95
P/S: 0.2 Price/Book: 0.93 EV/EBITDA: 6.13
Market Cap: $655.38M Avg. Daily Volume: 433,264 52 Week Range: $10.388 – $32.42

5. Assured Guaranty Ltd. (AGO): $25.74

Chief Investment Officer Andrew T. Feldstein acquired 115,552 shares of this insurance company, paying $19.62 per share for a total amount of $2.27 million. Mr. Feldstein increased his stake by 24.73% to 582,809 shares with this purchase. 47,580 of these shares were purchased indirectly by Mr. Feldstein’s spouse and 20,392 of these shares were purchased indirectly by a trust.

You can view the list of recent insider transactions for Assured Guaranty Ltd. here.

P/E: 6.44 Forward P/E: 7.01 Industry P/E: 8.55
P/S: 2.53 Price/Book: 0.36 EV/EBITDA: N/A
Market Cap: $2.38B Avg. Daily Volume: 754,829 52 Week Range: $13.64 – $50.77

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

Notable Insider Sales:

1. NexPoint Residential Trust, Inc. (NXRT): $26.65

Shares of this residential REIT were sold by 3 insiders:

  • President James D. Dondero sold 936,074 shares for $24.77, generating $23.19 million from the sale. These shares were sold indirectly by various trusts and entities.
  • Executive VP and Chief Investment Officer Matt McGraner sold 9,585 shares for $23.08, generating $221,253 from the sale.
  • Chief Financial Officer, Executive VP-Finance, Secretary and Treasurer Brian Mitts sold 7,000 shares for $24.15, generating $169,050 from the sale.

You can view the list of recent insider transactions for NexPoint Residential Trust, Inc. here.

P/E: 6.61 Forward P/E: -98.7 Industry P/E: 27.22
P/S: 3.72 Price/Book: 1.58 EV/EBITDA: 24.42
Market Cap: $674.16M Avg. Daily Volume: 392,151 52 Week Range: $22.21 – $52.87

2. Uber Technologies, Inc. (UBER): $27.28

Director Garrett Camp sold 510,000 shares of Uber for $26.56, generating $13.54 million from the sale. These shares were sold indirectly by Expa-1, LLC.

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

P/E: N/A Forward P/E: -22 Industry P/E: 33.98
P/S: 3.32 Price/Book: 3.3 EV/EBITDA: -5.47
Market Cap: $47.02B Avg. Daily Volume: 38,043,393 52 Week Range: $13.71 – $47.08

3. Medallia, Inc. (MDLA): $21.73

Shares of this software application company were sold by 2 insiders:

  • Director Borge Hald sold 580,000 shares for $22.18, generating $12.86 million from the sale. 290,000 of these shares were sold indirectly by Mr. Hald’s spouse.
  • President & CEO Leslie Stretch sold 30,262 shares for $20.99, generating $635,109 from the sale.

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

P/E: N/A Forward P/E: -724.33 Industry P/E: 38.02
P/S: 7.23 Price/Book: 7.25 EV/EBITDA: -25.45
Market Cap: $2.91B Avg. Daily Volume: 1,982,429 52 Week Range: $16.67 – $44.72

4. Black Knight, Inc. (BKI): $57.04

Director William P. Foley II sold 250,000 shares of this software infrastructure company for $53.57, generating $13.39 million from the sale.

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

P/E: 78.14 Forward P/E: 25.46 Industry P/E: 29.53
P/S: 7.27 Price/Book: 4.44 EV/EBITDA: 25.22
Market Cap: $8.56B Avg. Daily Volume: 1,096,856 52 Week Range: $50.01 – $76.44

5. Morningstar, Inc. (MORN): $117.08

Executive Chairman Joseph D. Mansueto sold 84,559 shares of this independent investment research services provider for $113.41, generating $9.59 million from the sale.

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

P/E: 33.26 Forward P/E: 41.23 Industry P/E: 12.61
P/S: 4.26 Price/Book: 4.63 EV/EBITDA: 21.68
Market Cap: $5.02B Avg. Daily Volume: 80,540 52 Week Range: $102.59 – $166.59

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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