Insider Weekends: Markets Continue To Buck Economic Headwinds

Welcome to edition 514 of Insider Weekends. With the latest round of unemployment data indicating an additional 4.4 million Americans filed for unemployment, the total number of people filing for unemployment has now reached 26.5 million and the unemployment rate spiked over 20%. For context, the unemployment rate in March 2020 was 4.4% and the highest it ever reached during the last recession was 10% in October 2009.

U.S. Unemployment Initial Claims By Week

U.S. Unemployment Initial Claims By Week (click to enlarge)

The shock to the economy has been rapid and is reflected in many pockets of the market with oil futures (WTI) for May closing in negative territory for the first time ever. The WTI oil future debacle was aggravated by other factors besides demand, such as speculation, huge inflows into the oil ETF USO, contango in futures, the structure of the USO ETF and the fact that WTI oil futures could not be settled in cash and physical delivery had to be taken in Cushing, Oklahoma.

The S&P 500 ended the week marginally down and I am surprised it did not head lower. A few weeks ago, I was encouraged that the stimulus programs might help offset a large part of the impact of COVID-19 related shutdowns. But I am not so optimistic now. The payroll protection program (PPP) of the stimulus program that was supposed to help small businesses was heavily oversubscribed and many small businesses, including ones I am familiar with, did not get any of the stimulus money. I am also hearing from folks who are trying to get unemployment benefits that their state’s unemployment offices are severely backed up and it has not been easy applying for or getting unemployment. While congress has passed a new stimulus bill that adds $310 billion to the PPP for small businesses, it may similarly take time to get into the hands of small businesses that have had to lay off or furlough their employees for several weeks at this time.

It is possible that the market is more focused on the positive impact of all these stimulus programs, the fact that several countries in Europe are planning on opening their economies in stages and perceiving these job losses as short-term. The S&P 500 is dominated by a few large companies like Amazon that have done well through this downturn and does not truly represent the damage that has been done. The Russell 2000 index of small companies also held up well last week and it will be interesting to see how it behaves in the near future. I continue to feel the risk remains to the downside.

Insider buying decreased last week with insiders purchasing $23.82 million of stock compared to $48.84 million in the week prior. Selling increased with insiders selling $1.02 billion of stock last week compared to $541.19 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 went up significantly to 42.73. In other words, insiders sold almost 43 times as much stock as they purchased. The Sell/Buy ratio this week compares unfavorably with the prior week, when the ratio stood at 11.08. 

Insider Sector Heat Map April 25, 2020

Insider Sector Heat Map April 25, 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. Halliburton Company (HAL): $8.86

Director Murry Gerber acquired 350,000 shares of this oil & gas equipment & services company, paying $8.68 per share for a total amount of $3.04 million. Mr. Gerber increased his stake by 155.64% to 574,879 shares with this purchase.

I have been thinking about the energy industry and have been getting a lot of questions about the best way to get exposure to this industry in turmoil. I was a tourist in this industry more than a decade ago and got burned. For the most part I tell investors to tread carefully and not get into instruments like the oil ETF USO that is structured to be hurt in an environment where futures are in contango. It is also important to understand which parts of the industry are likely to be hurt the most if prices stay low for a short period of time or for an extended period.

Besides the physical commodity, the other ways to get exposure is through,

  • the oil producers
  • the oil services companies like Halliburton
  • the refiners and
  • the pipeline companies.

If prices continue to remain low because of OPEC’s actions or low demand, the oil services companies followed by the producers are likely to be hurt the most. I decided to use this disruption to add to my position in the pipeline and storage Alerian MLP ETF (AMLP).

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

P/E: N/A Forward P/E: -26.85 Industry P/E: N/A
P/S: 0.36 Price/Book: 1.14 EV/EBITDA: 5.59
Market Cap: $7.74B Avg. Daily Volume: 28,641,336 52 Week Range: $4.25 – $29.21

2. Accelerate Diagnostics, Inc. (AXDX): $10.28

Director Jack W. Schuler acquired 296,695 shares of this diagnostics & research company, paying $9.33 per share for a total amount of $2.77 million. These shares were purchased indirectly through a trust.

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

P/E: N/A Forward P/E: -9.26 Industry P/E: 38.29
P/S: 62.82 Price/Book: N/A EV/EBITDA: -8.4
Market Cap: $584.04M Avg. Daily Volume: 397,495 52 Week Range: $4.53 – $24

3. AT&T Inc. (T): $29.71

Director Stephen J. Luczo acquired 36,000 shares of AT&T, paying $29.38 per share for a total amount of $1.06 million. These shares were purchased indirectly through a trust.

Mr. Luczo, the Chairman of the Board of Seagate Technology (STX), was appointed to AT&T’s board in November 2019. Since new directors often tend to buy shares of the companies they join, I did not read much into his purchase of AT&T in February of this year when he purchased 100,000 shares at an average price of $37.60.

This purchase comes at the heels of the announcement that AT&T’s CEO Randall Stephenson is stepping down from his role on July 1st after serving 13 years as the company’s CEO.

You can view the list of recent insider transactions for AT&T Inc. here.

P/E: 15.14 Forward P/E: 8.87 Industry P/E: 17.97
P/S: 1.18 Price/Book: 1.19 EV/EBITDA: 7.66
Market Cap: $211.68B Avg. Daily Volume: 48,263,946 52 Week Range: $26.08 – $39.7

4. Groupon, Inc. (GRPN): $1.11

Director Theodore Leonsis acquired 1,000,000 shares of this online local commerce marketplace operator, paying $0.95 per share for a total amount of $950,000. Mr. Leonsis increased his stake by 61.35% to 2,629,996 shares with this purchase.

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

P/E: N/A Forward P/E: 37 Industry P/E: 46.98
P/S: 0.28 Price/Book: 1.59 EV/EBITDA: 2.82
Market Cap: $629.28M Avg. Daily Volume: 18,140,665 52 Week Range: $0.48 – $3.82

5. Morgan Stanley (MS): $37.97

Director Stephen J. Luczo acquired 19,000 shares of Morgan Stanley, paying $38.68 per share for a total amount of $734,871. These shares were purchased indirectly through a trust.

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

P/E: 7.89 Forward P/E: 8.42 Industry P/E: 14.35
P/S: 1.47 Price/Book: 0.83 EV/EBITDA: N/A
Market Cap: $59.82B Avg. Daily Volume: 19,598,915 52 Week Range: $27.2 – $57.57

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

Notable Insider Sales:

1. Tallgrass Energy, LP (TGE): $22.39

Shares of this crude oil transportation services provider were sold by 2 insiders:

  • Chief Executive Officer William R. Moler sold 1,403,766 shares for $26.25, generating $36.85 million from the sale. These shares were sold indirectly through a trust.
  • Executive Vice President, General Counsel and Secretary Christopher R. Jones sold 103,983 shares for $26.25, generating $2.73 million from the sale. These shares were sold indirectly through a trust.

You can view the list of recent insider transactions for Tallgrass Energy, LP here.

P/E: 15.81 Forward P/E: 111.95 Industry P/E: N/A
P/S: N/A Price/Book: N/A EV/EBITDA: N/A
Market Cap: $6.31B Avg. Daily Volume: 6,203,553 52 Week Range: $10.93 – $24.88

2. Uber Technologies, Inc. (UBER): $29.49

Director Garrett Camp sold 510,000 shares of Uber for $28.02, generating $14.29 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: -21.84 Industry P/E: 37.13
P/S: 3.6 Price/Book: 3.57 EV/EBITDA: -5.94
Market Cap: $50.94B Avg. Daily Volume: 39,629,119 52 Week Range: $13.71 – $47.08

3. salesforce.com, inc. (CRM): $153.98

Shares of this software application company were sold by 6 insiders:

  • Chair of the Board & CEO Marc Benioff sold 50,000 shares for $156.64, generating $7.83 million from the sale. These shares were sold as a result of exercising options immediately prior to the sale.
  • Director Alan G. Hassenfeld sold 20,000 shares for $160.00, generating $3.2 million from the sale.
  • President and CFO Mark J. Hawkins sold 7,127 shares for $154.00, generating $1.09 million from the sale. These shares were sold as a result of exercising options immediately prior to the sale.
  • President & COO Bret Steven Taylor sold 5,728 shares for $160.49, generating $919,304 from the sale.
  • Pres/Chief Engineering Officer Srinivas Tallapragada sold 800 shares for $155.25, generating $124,197 from the sale.
  • Director John Victor Roos sold 119 shares for $160.00, generating $19,040 from the sale.

You can view the list of recent insider transactions for salesforce.com, inc. here.

P/E: 1026.53 Forward P/E: 39.69 Industry P/E: 42.65
P/S: 8.06 Price/Book: 4.06 EV/EBITDA: 57.23
Market Cap: $137.81B Avg. Daily Volume: 7,740,360 52 Week Range: $115.29 – $195.72

4. Slack Technologies, Inc. (WORK): $26.06

Shares of this software application company were sold by 4 insiders:

  • Director Andrew Braccia sold 413,962 shares for $29.98, generating $12.41 million from the sale. These shares were sold indirectly through a trust.
  • General Counsel and Secretary David Schellhase sold 10,000 shares for $30.00, generating $300,000 from the sale.
  • Chief Accounting Officer Brandon Zell sold 6,729 shares for $30.00, generating $201,870 from the sale.
  • Chief Technology Officer Cal Henderson sold 3,200 shares for $30.02, generating $96,060 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: -124.1 Industry P/E: 42.65
P/S: 23.02 Price/Book: 19.55 EV/EBITDA: -27
Market Cap: $14.51B Avg. Daily Volume: 15,506,903 52 Week Range: $15.1 – $42

5. The Boston Beer Company, Inc. (SAM): $438.92

Shares of this beverage company were sold by 2 insiders:

  • Chairman James C. Koch sold 25,418 shares for $426.57, generating $10.84 million from the sale.
  • Vice President of Brewing David L. Grinnell sold 947 shares for $432.50, generating $409,578 from the sale. 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 The Boston Beer Company, Inc. here.

P/E: 50.97 Forward P/E: 33.87 Industry P/E: 20.52
P/S: 4.02 Price/Book: 6.91 EV/EBITDA: 25.27
Market Cap: $5.35B Avg. Daily Volume: 175,604 52 Week Range: $290.02 – $444.65

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 a long position in AMLP. 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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