Welcome to edition 516 of Insider Weekends. To the surprise of many market participants, including myself, the U.S. market continued to rally last week with the beaten down Russell 2000 index, which represents small cap companies, registering a gain of 5.2% and the Nasdaq close behind with a gain of 4.7% for the week. Over the last month both the Nasdaq and the S&P 500 have registered double digit gains but the Russell 2000 index lagged behind them and is still down nearly 20% over the last three months despite recent gains.
AQR’s Cliff Asness covers some of this dichotomy between large cap growth and small cap value in his latest perspective Is (Systemic) Value Investing Dead?. This dichotomy does not fully explain the rally we have seen off the March lows and investors appear to be firmly focused on the following four positive factors,
- Gilead’s antiviral drug Remdesivir as a potential treatment
- The possibility of a vaccine developed by researchers at Oxford University becoming available as early as this Fall
- The sooner than expected reopening of economies around the world including here in California
- The additional liquidity provided by the Fed and massive stimulus program including a second tranche of $310 billion for the Payroll Protection Program (PPP) for small businesses
A lot of small businesses that missed out on the first $350 billion tranche of PPP loans have now been able to get that loan and I am hearing that people have been able to get unemployment benefits. The employment divisions of several states were overwhelmed in the early days of this crisis by the huge surge in unemployment filings. These positive developments are juxtaposed with news of small businesses permanently shutting down, large companies significantly scaling back capital investments and industries that have been decimated including the auto, energy and travel industries.
I wrote last week that I don’t think the risks outweigh rewards at this point. I mentioned “That does not mean I have not been nibbling on the long side and started a new position last week that I plan to add to in the coming months…”.
In mid-March we talked about how insider buying had surpassed insider selling for the first time in nearly 10 years and outlined the case for nibbling on the long side when we wrote,
My biggest mistake during the 2008-2009 crisis was not about being unprepared for that bear market but remaining bearish long after the bottom in March 2009 and missing a generational opportunity on the long side. This time around I plan to hone my watch list using insider buying as a discovery tool and start nibbling on the long side even if it is a little early to do so.
Despite adding to existing positions and starting new ones, my portfolio remains significantly in cash. Hedges like S&P 500 put options that had been significantly cheaper earlier this year are now very expensive on account of volatility even if you use options strategies like verticals. In this environment, cash seems to be as good a hedge as any unless you lean towards gold or bitcoin like Paul Tudor Jones has done recently. I am going to continue adding to my watch list by generating ideas from insider buying and other event driven strategies and buy positions from this watch list as they become attractively positioned.
Insider buying increased last week with insiders purchasing $50.88 million of stock compared to $14.96 million in the week prior. Selling also increased with insiders selling $1.72 billion of stock last week compared to $1.39 billion in the week prior. While this level of insider selling may appear high, it is not unusual seeing this kind of selling coming out of earnings related quiet periods. We saw similar levels of insider selling in February as well.
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 33.78. In other words, insiders sold almost 34 times as much stock as they purchased. The Sell/Buy ratio this week compares favorably with the prior week, when the ratio stood at 93.27.
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. Univar Solutions Inc. (UNVR): $15.05
EVP, CFO Nicholas W. Alexos acquired 250,000 shares of this commodity and specialty chemical products distributor, paying $13.33 per share for a total amount of $3.33 million. These shares were purchased indirectly through a trust.
You can view the list of recent insider transactions for Univar Solutions Inc. here.
|P/E: N/A||Forward P/E: 9.71||Industry P/E: 12.07|
|P/S: 0.27||Price/Book: 1.47||EV/EBITDA: 8.78|
|Market Cap: $2.54B||Avg. Daily Volume: 2,491,658||52 Week Range: $6.4 – $24.77|
2. The GEO Group, Inc. (GEO): $11.5
Chairman & CEO George C. Zoley acquired 250,000 shares of this prison operating REIT, paying $11.31 per share for a total amount of $2.83 million. Mr. Zoley increased his stake by 10.00% to 2,750,000 shares with this purchase. 100,000 of these shares were purchased indirectly through a trust.
The GEO group is a for-profit prison operator that appears to be facing a perfect storm right now as a leveraged company in a COVID-19 vulnerable industry. Prisons are at high risk of COVID-19 outbreaks because of the close proximity of prisoners and we have seen some countries release their prison populations either to reduce risk or because of outbreaks. The company also has a leveraged balance sheet with $2.8 billion in net debt and with net debt increasing in each of the last four years.
The other risk later this year is the upcoming elections since republican administrations are generally more favorable to prison operators while democratic administrations often look into managing prisons at the state or local levels instead of relying on for-profit prisons. The stock has been declining steadily over the last three years but is not exactly cheap and is hard to understand why the CEO is buying stock on the open market. He also purchased shares in February and March of this year and was joined by his CFO and SVP of Business Development in March when they purchased 5,000 shares and 6,574 shares respectively.
You can view the list of recent insider transactions for The GEO Group, Inc. here.
|P/E: 9.08||Forward P/E: 7.14||Industry P/E: 27.13|
|P/S: 0.56||Price/Book: 1.43||EV/EBITDA: 10|
|Market Cap: $1.4B||Avg. Daily Volume: 1,705,777||52 Week Range: $9.95 – $24.03|
3. AGNC Investment Corp. (AGNC): $12.705
Director, CEO, and CIO Gary D. Kain acquired 189,188 shares of this mortgage REIT, paying $12.60 per share for a total amount of $2.38 million. These shares were purchased indirectly through a trust.
You can view the list of recent insider transactions for AGNC Investment Corp. here.
|P/E: N/A||Forward P/E: 6.65||Industry P/E: N/A|
|P/S: -3.77||Price/Book: 0.87||EV/EBITDA: N/A|
|Market Cap: $7.21B||Avg. Daily Volume: 13,894,482||52 Week Range: $6.25 – $19.65|
4. Cullen/Frost Bankers, Inc. (CFR): $68.6
Director Graham M. Weston acquired 29,400 shares of this regional bank, paying $68.00 per share for a total amount of $1.99 million. These shares were purchased indirectly by by Trout Capital, Ltd..
You can view the list of recent insider transactions for Cullen/Frost Bankers, Inc. here.
|P/E: 11.78||Forward P/E: 16.33||Industry P/E: 8.27|
|P/S: 3.33||Price/Book: 1.12||EV/EBITDA: N/A|
|Market Cap: $4.29B||Avg. Daily Volume: 745,369||52 Week Range: $47.69 – $100.79|
5. FB Financial Corporation (FBK): $22.22
Shares of this regional bank were acquired by 3 insiders:
- Executive Chairman James W. Ayers acquired 59,250 shares, paying $22.10 per share for a total amount of $1.31 million. Mr. Ayers increased his stake by 0.44% to 13,578,490 shares with this purchase.
- Director Raja J. Jubran acquired 9,142 shares, paying $21.88 per share for a total amount of $200,027. Mr. Jubran increased his stake by 157.35% to 14,952 shares with this purchase.
- Director William F. Carpenter III acquired 4,547 shares, paying $22.35 per share for a total amount of $101,625. Mr. Carpenter increased his stake by 200.49% to 6,815 shares with this purchase.
You can view the list of recent insider transactions for FB Financial Corporation here.
|P/E: 10.87||Forward P/E: 10.24||Industry P/E: 8.27|
|P/S: 2.08||Price/Book: 0.91||EV/EBITDA: N/A|
|Market Cap: $712.54M||Avg. Daily Volume: 151,517||52 Week Range: $14.38 – $40.33|
You can view the full list of purchases from this Insider Buying page.
Notable Insider Sales:
1. Fortive Corporation (FTV): $59.27
Director Mitchell P. Rales sold 5,256,349 shares of this scientific & technical Instruments company for $58.07, generating $305.22 million from the sale. 529,028 of these shares were sold indirectly through various trusts.
You can view the list of recent insider transactions for Fortive Corporation here.
|P/E: 36.88||Forward P/E: 16.6||Industry P/E: 15.58|
|P/S: 2.68||Price/Book: 2.76||EV/EBITDA: 15.48|
|Market Cap: $19.97B||Avg. Daily Volume: 2,762,866||52 Week Range: $37.31 – $83.18|
2. Antero Midstream Corporation (AM): $4.18
Shares of this oil & gas midstream company were sold by 2 insiders:
- Chief Executive Officer Paul M. Rady sold 18,000,000 shares for $4.10, generating $73.79 million from the sale. These shares were sold indirectly by a trust.
- President and Secretary Glen C. Warren sold 10,000,000 shares for $4.10, generating $40.99 million from the sale.
You can view the list of recent insider transactions for Antero Midstream Corporation here.
|P/E: N/A||Forward P/E: 4.06||Industry P/E: 43.65|
|P/S: 1.89||Price/Book: 0.77||EV/EBITDA: 7.35|
|Market Cap: $1.99B||Avg. Daily Volume: 9,720,965||52 Week Range: $1.69 – $13.72|
3. Snap Inc. (SNAP): $18.23
Chief Executive Officer Evan Spiegel sold 3,877,100 shares of this camera company for $16.80, generating $65.12 million from the sale.
You can view the list of recent insider transactions for Snap Inc. here.
|P/E: N/A||Forward P/E: 165.73||Industry P/E: 31.82|
|P/S: 14.19||Price/Book: 12.35||EV/EBITDA: -28.57|
|Market Cap: $26.35B||Avg. Daily Volume: 32,905,734||52 Week Range: $7.89 – $19.755|
4. USANA Health Sciences, Inc. (USNA): $87.99
Director Myron W. Wentz sold 641,270 shares of this personal care products company for $80.75, generating $51.78 million from the sale. These shares were sold indirectly by Gull Global Limited.
You can view the list of recent insider transactions for USANA Health Sciences, Inc. here.
|P/E: 18.99||Forward P/E: 16.73||Industry P/E: 40.81|
|P/S: 1.75||Price/Book: 5.82||EV/EBITDA: 10.17|
|Market Cap: $1.85B||Avg. Daily Volume: 271,346||52 Week Range: $43.01 – $90.94|
5. Apollo Global Management, Inc. (APO): $43.93
Senior Managing Director Marc J. Rowan sold 747,286 shares of this asset management company for $41.37, generating $30.92 million from the sale. These shares were sold indirectly by RWN Management, LLC.
You can view the list of recent insider transactions for Apollo Global Management, Inc. here.
|P/E: N/A||Forward P/E: 16.03||Industry P/E: 16.11|
|P/S: 14.9||Price/Book: 3993.64||EV/EBITDA: N/A|
|Market Cap: $10.05B||Avg. Daily Volume: 2,926,934||52 Week Range: $19.46 – $52.67|
You can view the full list of sales from this Insider Sales page.
Disclaimer: I hold a long position in Gilead Sciences (GILD). 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.